Taxation Of Life Insurance And Annuities - Premiums And Proceeds Flashcards
Upon surrender of a life Insurence 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 the 7 a pay test?
Yo determine if a life insurance policy is a modified endowment contract.
What portion of non qualified annuity payment would be taxed?
Interest earned on principal.
Why are dividends in life insurance policies not taxable?
Dividend are not considered income for tax purposes; they are a return of unused premium.
What is the name for an overfunded life Insurence policy?
A modified endowment contract (MEC).
What is the general taxation tule for death benefits payable to the beneficiary of a life insurance policy?
Death benefits are generally not subject to income taxes.
According to the taxation rules of life Insurence policies, how are cash value increases taxed?
Cash value growth is tax deferred.
When would life insurance policy proceeds be included in the insured’s taxable estate?
When there is an incident of ownership at the time of death.
Is the death benefit of a life insurance policy taxed to the beneficiary if it’s received as a lump sum?
No, lump sum benefits are received tax free.
If the beneficiary of a life insurance policy receives death benefit payments that consist of principal and interest, which portion, if any, will be taxed?
Interest only.
In a direct rollover, how is the money transferred from one retirement plan to a new one?
From trustee to trustee.
