#1
Which of the following is a tax advantage associated with life insurance?
Tax-exempt death benefit
ExplanationDeath benefit from life insurance is exempt from taxes.
#2
Which of the following is a characteristic of a whole life insurance policy?
Cash value accumulation
ExplanationWhole life insurance policies accumulate cash value over time.
#3
What is the primary purpose of an annuity?
To accumulate funds for retirement
ExplanationAnnuities are primarily used to save funds for retirement.
#4
Which of the following is a feature of a universal life insurance policy?
Flexibility to adjust premiums and death benefits
ExplanationUniversal life insurance policies offer the flexibility to adjust premiums and death benefits.
#5
What is the tax treatment of surrender charges on a life insurance policy?
Not tax-deductible
ExplanationSurrender charges on a life insurance policy are not tax-deductible.
#6
Which of the following is true regarding the tax treatment of annuity payouts?
Annuity payouts may be partially taxable as ordinary income.
ExplanationAnnuity payouts may be partially taxable as ordinary income.
#7
What is the tax treatment of the death benefit received from a life insurance policy?
Tax-free
ExplanationThe death benefit received from a life insurance policy is not taxed.
#8
Annuity distributions are taxed as ordinary income except when?
When the annuity was purchased with after-tax dollars
ExplanationAnnuity distributions are taxed as ordinary income unless purchased with after-tax dollars.
#9
How are withdrawals from a variable annuity taxed?
As ordinary income
ExplanationWithdrawals from variable annuities are taxed as ordinary income.
#10
Under what circumstances are life insurance premiums typically tax-deductible?
When the policy is owned by a corporation and the insured is an employee
ExplanationLife insurance premiums are often tax-deductible when the policy is owned by a corporation and the insured is an employee.
#11
Which of the following is a benefit of owning a life insurance policy inside an irrevocable life insurance trust (ILIT)?
Avoidance of estate taxes
ExplanationOwning a life insurance policy inside an irrevocable life insurance trust (ILIT) can help avoid estate taxes.
#12
In what way do life insurance policy loans affect the tax treatment of the policy?
They trigger taxable income
ExplanationPolicy loans against life insurance trigger taxable income.
#13
Which of the following is a characteristic of a non-qualified annuity?
Contributions are made with after-tax dollars
ExplanationNon-qualified annuities involve contributions made with after-tax dollars.
#14
What happens to the cash value of a life insurance policy if the policyholder surrenders the policy?
It is returned minus taxes and surrender charges
ExplanationCash value of a surrendered life insurance policy is returned, subject to taxes and surrender charges.
#15
What is a 1035 exchange in relation to life insurance and annuities?
A tax-free exchange of one life insurance or annuity contract for another
ExplanationA 1035 exchange refers to a tax-free swap of one life insurance or annuity contract for another.
#16
What is the tax treatment of the annuitization phase of an annuity?
Partially taxable
ExplanationThe annuitization phase of an annuity is partially taxable.
#17
In which situation would the death benefit from a life insurance policy be subject to estate taxes?
The policy is owned by the insured's estate.
ExplanationThe death benefit from a life insurance policy may be subject to estate taxes if the policy is owned by the insured's estate.
#18
What is the tax treatment of premiums paid for a key person life insurance policy by a business?
Tax-deductible for the business
ExplanationPremiums paid for a key person life insurance policy by a business are tax-deductible for the business.