Risk Management / Insurance Planning

Question 1

IRC Section 1035

Answer 1

Annuities may be exchanged tax-free for other annuities

Question 2

Withdrawal treatment for annuities

Answer 2

LIFO

Subject to a 10% early withdrawal penalty

Question 3

Life only annuitizations provides…

Answer 3

The highest income but ends at death of annuitant

Question 4

Annuities with after-tax basis receive an exclusion amount for annuitization….

Answer 4

Basis / Expected Payout = Tax Free portion of annuitization payment

Exclusion amount ends when all basis has been recovered.

Withdrawals are LIFO

Question 5

How are gains distributed from a non-qualified annuity taxed?

Answer 5

Ordinary Income

Question 6

Exclusion Amount
(annuitized annuity)

Answer 6

Applied from each payment until the basis is recovered.

Exclusion Ratio = Investment in Contract / (annual payment x life expectancy)

If payments go beyond life expectancy, all is taxable income.

Question 7

Permitted 1035 Exchanges

Answer 7

Think of a pyramid and a skier. You can only do a 1035 down the pyramid. (LEAQ)

Life Insurance
Endowment
Annuity
Qualified LTCi

It’s all downhill from here… pyramid

LOVED ELIZABETH AS QUEEN

Question 8

Personal Auto Policy PAP:
Part A Liability Split Limit…

Answer 8

• 250k - Max Bodily Injury - ONE person
• 750k Max all bolidy injury, more than one
• 100k - max property damage total

Question 9

PAP Part D

Answer 9

Collision - Pays for damage with automobile vs another vehicle, light pole, building.

Comprehensive - All other damage to auto, theft, glass breakage, flood, fire, ANIMAL!

Question 10

Personal Liability Umbrella Policy (PLUP)

Answer 10

Typically $1million +

The required underlying policy must be exhausted first before the umbrella pays.

Covers cost of defense.

Covers boats, ATV’s

Extends to Libel or slander