Life insurance taxes

Question 1

Lump-sum death benefits paid to a named beneficiary are

Answer 1

Tax-free

Question 2

Mary receives monthly payments from her deceased husbands life insurance policy where he chose the fixed amount installment option. Each payment consists of principal and interest. How is this income taxed?

Answer 2

The interest portion of the payment is taxed: the principal is not taxed

Question 3

Premiums paid on an individual life insurance policy are

Answer 3

Not tax deductible

Question 4

Which of the following dividend options would create a taxable event for the policy owner?

Answer 4

Accumulate at interest

Question 5

Dividends paid by a participating life insurance policy are

Answer 5

Received tax-free

Question 6

If a cash value exceeds the premiums paid in a whole life policy, what are the tax consequences?

Answer 6

The portion that exceeds the premiums paid is taxable

Question 7

A whole life insurance policy in which the cash value builds faster than a 7- pay whole life policy is classified as a

Answer 7

Modified Endowment Contract

Question 8

Which of the following statements is NOT true about Modified Endowment Contracts?

Answer 8

A death benefit paid on a MEC is taxable as income