Federal Tax Flashcards
What is the general taxation rule for death benefits payable to the beneficiary of a life insurance policy?
Death benefits are generally not subjected to income taxes
What is the name of the overfunded life insurance policy?
Modify endowment contract (MEC)
Why are dividends in life insurance policies, not taxable?
Dividends are not considered income for tax purposes. They are a return on unused premiums.
In a direct rollover, how was the money transferred from run retirement plan to a new one.
From Trustee to Trustee
Upon surrender of a life insurance policy, what portion of the cash value will be taxed?.
Only the portion in excess of the premium paid
What is the main purpose of a seven pay test?
To determine if a Life insurance policy is a modified endowment contract
When would Life insurance policy proceeds be included in the insured taxable estate?
When there is an incident of ownership at the time of death
What portion of a nonqualified annuity payment would be taxed?
Interest earned on the principal
If the beneficiary of a life insurance policy receives a death benefit payment that consist of principle and interest, which portion if any will be taxed?
The interest only
According to taxation rules of life insurance policies, how are cash value increases tax??
Cast value growth is tax deferred
Is the death benefits of insurance policy tax to beneficiaries if it receives as a lump sum?
No lump sum benefits are received tax-free
