Chapter 7 - Federal Tax Considerations for Life Insurance and Annuities Flashcards
1
Q
What is the key in determining what exchanges are allowed for 1035s?
A
The exchange may not be from a less tax-advantaged contract to a more tax-advantaged contract. “Same to Same” is acceptable.
2
Q
According to the taxation rules of life insurance policies, how are cash value increases taxed?
A
Cash value growth is tax-deferred
3
Q
What part of a nonqualified annuity payment would be taxed?
A
Interest earned on the principal
4
Q
What is the name for an overfunded life insurance policy?
A
A Modified Endowment Contract
MEC
5
Q
Upon surrender of a life insurance policy, what portion of the cash value will be taxed?
A
Only the portion in excess of the premiums paid
