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A __________ is an official contract between an individual and an insurance company for a guaranteed interest bearing policy that provides tax-deferred earnings and includes optional guaranteed income choices.


A) Fixed annuity
B) Variable annuity
C) Index annuity
D) Equity index annuity

E) B) and D)
F) B) and C)

Correct Answer

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A

With regard to group life insurance, the IRS has deemed that the first __________ of death benefit coverage may be excluded from the employee's compensation.


A) $25,000
B) $30,000
C) $50,000
D) $80,000

E) None of the above
F) All of the above

Correct Answer

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Under which circumstances could the proceeds of a life insurance policy be included in the decedent's taxable estate?


A) There is a transfer of ownership within three years of death (within certain guidelines)
B) The decedent at his or her death possessed an incident of ownership in the policy
C) The proceeds of the life insurance policy are paid to the executor of the decedent's estate
D) All of the above

E) A) and D)
F) B) and C)

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In order for life insurance in a qualified retirement plan to be considered incidental, it will have to meet which of the following tests:


A) The cost of the life insurance must be less than 25 percent of the cost to provide all plan benefits
B) The life insurance death benefit cannot exceed 100 times the monthly retirement income that is provided by the qualified retirement plan
C) Either A or B
D) Neither A nor B

E) B) and C)
F) A) and B)

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If an individual leaves life insurance proceeds to __________, then these proceeds will not be subject to taxation in their estate at the time of the individual's death.


A) Their estate
B) Their spouse
C) Their children
D) Their best friend

E) A) and D)
F) B) and D)

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A(n) __________ is a special type of life insurance trust that is set up for the purpose of excluding life insurance proceeds from an individual's estate, thus shielding these dollars from estate taxes.


A) Revocable life insurance trust
B) Family trust
C) Medicaid trust
D) Irrevocable life insurance trust

E) C) and D)
F) None of the above

Correct Answer

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If an insured individual has an estate that is valued at $4 million and the estate tax exemption in the year of their death is $1 million, how much of their estate will be subject to estate taxes?


A) $4 million
B) $3 million
C) $1 million
D) None would be subject to estate tax as they owned a life insurance policy

E) B) and D)
F) A) and C)

Correct Answer

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If a life insurance policy lapses due to nonpayment of premiums or from borrowing too much from the policy, all policy loans are treated as being "forgiven" by the IRS, meaning that the loan is no longer considered to be a loan and the funds are not required to be paid back. In this case, then, forgiven loan amounts are treated as __________.


A) Dividends that are taxable to the policy holder
B) Tax free withdrawals to the policy holder
C) Ordinary and taxable income to the policy holder
D) Additional premium payments to the policy holder

E) B) and C)
F) A) and C)

Correct Answer

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Are the benefits received from a health insurance policy taxable?


A) Yes, if the premium was paid with pre-tax dollars
B) Yes, if the premium was paid with after-tax dollars
C) No, regardless of how the premiums were paid
D) None of the above

E) A) and B)
F) B) and D)

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Under IRS Section 1035 rules, a life insurance policy may be exchanged penalty-free for a(an) __________.


A) Annuity
B) Endowment contract
C) Both A and B
D) Neither A nor B

E) All of the above
F) B) and C)

Correct Answer

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An insured individual owns a life insurance policy with a face amount of $100,000. If they have a need for long-term care services and they access $40,000 from their life insurance policy in the form of "living benefits" to pay for the cost of the nursing home, upon withdrawal of these funds, how much will be subject to income taxation?


A) $100,000
B) $60,000
C) $40,000
D) $0

E) B) and D)
F) None of the above

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Withdrawal of a life insurance policy's cash value is typically only taxable when __________.


A) It is worth more than what the policy owner has paid into the policy
B) It is worth less than what the policy owner has paid into the policy
C) It is worth less than the policy's death benefit
D) None of the above

E) A) and B)
F) A) and C)

Correct Answer

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If a person earns $50,000 per year and they own an individual health insurance policy, how much would that individual need to spend on his or her medical expenses in order to deduct such expenses on their tax return?


A) $7,500
B) $5,000
C) $3,750
D) $2,500

E) A) and B)
F) A) and C)

Correct Answer

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The premiums that an insured chooses to contribute to their life insurance cash value are made with __________ dollars.


A) Tax free
B) Tax deferred
C) After tax
D) Tax indexed

E) None of the above
F) A) and D)

Correct Answer

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C

The cash value in a permanent life insurance policy typically grows on a __________ basis.


A) Tax free
B) Taxable
C) Tax neutral
D) Tax deferred

E) C) and D)
F) A) and D)

Correct Answer

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With a Modified Endowment Contract, or MEC, distributions (including policy loans) are subject to income tax to the extent that the gross cash value of the policy exceeds the policy owner's basis in the contract. In addition, a penalty of __________ may also apply if the distribution was made prior to the recipient attaining the age of 59 ½.


A) 25%
B) 15%
C) 10%
D) 0%

E) A) and D)
F) A) and B)

Correct Answer

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The premiums paid for life insurance coverage in a qualified retirement plan will be __________ by the plan sponsor.


A) Deductible
B) Non-deductible
C) Tax deferred
D) Tax free

E) B) and C)
F) A) and D)

Correct Answer

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Why do individual life insurance policy beneficiaries receive death benefits free from income taxation?


A) There is a standard deduction for insurance proceeds
B) The proceeds always pass outside of probate
C) The policy is paid for using after tax dollars via a contract
D) Life insurance beneficiaries do not receive proceeds free from income taxation

E) All of the above
F) B) and C)

Correct Answer

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If an individual receives benefits from a "qualified" long-term care insurance policy, how are these benefits treated in terms of taxation?


A) All benefits are considered to be ordinary income and are taxed as such
B) All benefits that are received must be adjusted against the total amount of premium that the insured paid in to the policy
C) Only the amount of benefits that exceed 7.5 percent of the insured's gross income may be deducted
D) All benefits received are treated as reimbursement for expenses that are incurred for the insured's medical care and are therefore not considered as part of taxable gross income (subject to a per diem dollar amount)

E) B) and D)
F) A) and B)

Correct Answer

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D

A __________ will allow for the direct transfer of money from a non-qualified annuity from one insurance company to another without incurring an IRS penalty or taxation.


A) 1031 exchange
B) 1035 exchange
C) ERISA exchange
D) TEFRA exchange

E) A) and D)
F) A) and C)

Correct Answer

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