Federal Tax Considerations For Life Insurance Flashcards
Generally speaking premiums are or are not tax deductible?
Are not
Generally speaking the death benefit is tax free if taken as a _________ to a named beneficiary and principal is _____________; interest is _________ if paid in installments (other than lump sum)
Lump-sum, tax free, taxable
Dividends ________ considered income for tax purposes. When left with insurer to accumulate interest the interest is __________ whether or not the interest is paid out to the policy owner.
Are not; taxable
Cash values grow _________. Upon surrender any cash value in excess of costs is ___________. Death benefits are generally paid to the beneficiary ________.
Tax deferred, taxable, tax free
T/F: policy loans from the cash value are not income taxable.
True
When a policyowner surrenders a policy for cash value anything above what premiums were paid is _________.
Taxable
In regards to taxation when Accelerated benefits are paid for terminal illness they are ________. When paid for chronically ill they are _______ up until a certain limit.
Tax free; tax free
Transfer of value is or is not tax free.
Is not
I’m regards to taxation With settlement the interest portion is _______ , the principal amount is __________.
Taxable, tax free
True/false: Taxes must be paid either upon contribution or upon distribution. Not both.
True
I’m regards to taxes Premiums that an employer pays on group life are or are not tax deductible. If the group policy is _________ or less the employee does not have to report the premium paid as income.
Are not; $50k
Anytime the employer is the names beneficiary the premiums are or are not tax deductible.
Are not
Cash value of a business owned life policy accumulates on a _______ basis. And is taxed _________ as an individually owned policy.
Tax deferred; the same as
Policy loans are or are not taxable for a business? A Corp __________ interest on a life insurance policy loan for loans up to $50k
Are not; may deduct (unlike on an individual)
Partial surrenders follow the _______ rule
Fifo (first in first out)
The policy owner receives their investment in the contract first before receiving any gains (taxable) in the policy.
FIFO
If the insured owns the policy it will be _________ for estate tax purposes. If the policy is given away (to a trust) and the insured dies within _________ of the gift the death benefit will be included in the _________.
Included, 3 years, estate
An overfunded insurance policy. and fails what test
MEC, 7-pay test
T/F: once an MEC always an MEC
True
Tax rules for MEC’s:
- accumulations are _______
- distributions are _________
- distributions are taxed on a ____ basis (also known as interest first)
- distributions before age 59 1/2 are subject to a __ % penalty.
Tax deferred
Taxable
LIFO
10%
Taxation of traditional IRA’s:
- must be made in ______
- deductible?
- tax deferred earnings?
- cash
- yes
- yes
IRA distributions are taxable when?
I’m the year they are received
IRA early withdraws without penalty.
- total disability
catastrauphic medical expense
Down payment on first home up to 10k
Post secondary education
ITA rollover must be completed within __ days
60
Tax free distribution of cash from one retirement plan to another
Rollover
Tax free transfer of funds from one retirement orogram to a traditional IRA or a transfer of interest in a traditional IRA from one trustee directly to another.
Direct transfer
If IRA rollover is paid directly to the participant, __% must be withheld by the payor
20
I’m an IRA rollover 20% withholding can be avoided by _________________ direct payment into a new plan
Direct payment
I’m a direct rollover, how is the money transferred from one retirement plan to a new one
From trustee to trustee
What proton of a nonwualified annuity payment would be taxed?
Interest earned on principal
What is the name for an overfunded life insurance policy?
MEC
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.
When would life insurance policy proceeds be included in the insureds taxable estate?
When there is an incident of ownership at the time of death.
According to the taxation rules of life insurance policies, how are cash value increases taxed?
Cash value growth is tax deferred
Why are dividends in life insurance policies not taxable?
They are not consider income, they are a return of unused premium.
Funds in a qualified plan accumulate on a _________ as basis. However at distribution any amount received by the employee will be treated as _______________ for tax purposes.
Tax deferred; ordinary income
If $100,000 of life insurance proceeds were used in a settlement option, which paid $13,000 per year for ten years, how much would be taxable annually?
$3,000
