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NY Life and Health Insurance > Chapter 8 &9 > Flashcards

Chapter 8 &9 Flashcards

1
Q

According to the IRS Premiums paid on life insurance are

A

not tax deductible

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2
Q

Proceeds paid od Life Insurance are

A

Paid Income tax free to beneficiary

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3
Q

The interest paid on the cash value as it increase or accumulates

A

is tax deferred unless the cash value exceeds the single premium that required to fund future contract benefits.

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4
Q

If the cash surrender value exceeds the cost basis (gains) (Total Premiums paid less the dividends)

A

Considered Ordinary income and taxable

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5
Q

Dividends paid on Whole life policy

A

are taxed exempt

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6
Q

Dividends left the insurer to accumulate at interest

A

the interest earned will be taxed as ordinary income

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7
Q

Dividends will be taxable unless

A

they are used to purchase paid up additional insurance

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8
Q

If the total dividends received under a life insurance policy exceed the total premiums paid

A

it is taxable as ordinary income

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9
Q

The beneficiary receives the lump sum settlement

A

Income tax free

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10
Q

Whenever another settlement option is selected where the face amount is retained by the insurer

A

interest must be paid to the beneficiary

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11
Q

If a policy is transferred to another party for valuable consideration

A

It will loose its tax free status

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12
Q

When an individual dies all his or her assets are compiled and a monetary value are placed on them

A

Estate

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13
Q

Federal and State taxes may be levied on the estate value

A

Death taxes or Estate Taxes

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14
Q

Examples of property generally included in the estate

A

Real property, personal property, life insurance death benefits, annuities, gifts to others any interest or rights in other property

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15
Q

If used to pay for business purposes or to provide charitable contributions

A

Premiums may be tax deductible

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16
Q

The equity that builds with in a whole life policy is referred to as

A

cash value

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17
Q

If a contract owner borrows against the cash value in a contract

A

there are no tax consequences (in most cases)

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18
Q

If policy is a MEC distributions of subject to the interest first rule

A

They are taxable as income if the cash value of the contract immediately prior to payments exceeds the cost basis in the contract.

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19
Q

Barrowing against the cash value is sometimes referred to as

A

Partial surrender ( not taxable but lower owners equity)

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20
Q

What a owner paid into a contract

A

cost basis

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21
Q

When a contract owner barrows against the cash value of a whole life policy

A

The interest paid to the insurer is not tax deductible

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22
Q

When a beneficiary receives a lump sum settlement it is receive tax free but

A

the interest paid is taxable as ordinary income

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23
Q

Home or rental property

A

Real Property

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24
Q

Gifts or other property transfers are included in the estate if the descendants dies with in

A

60 months

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25
Q

Based upon the value of the estate at the time of the property owners death

A

Death Taxes

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26
Q

Premiums paid for it are not in proportion to the death benefit provided

A

Modified Endowment Contract (MEC)

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27
Q

A MEC

A

Is not a life insurance policy

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28
Q

If the accumulated premiums paid at any time during the initial seven years of the contract exceed the sum of net level premiums that should have been paid during this time frame

A

Is A (MEC) Modified Endowment Contract

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29
Q

designed to reduce or prevent the purchase of whole life insurance for the purpose of short term investment gains

A

The Rule of Seven Pay Test

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30
Q

Modified Endowment Contracts receive favorable tax treatment on interest credited policy cash value (tax deferral)

A

As long as no distributions are made

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31
Q

Cash distributions from MEC are subject to taxation on income in the year received

A

if the cash value on the contract prior to pay exceeds the investments (premiums)

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32
Q

The contract owner will be penalized 10% premature distribution and penalty tax is assessed on any MEC distributions from a MEC that is included in the recipients taxable income

A

When withdrawn prior to 59

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33
Q

No penalty tax will be applied on a MEC if

A

received because of disability, received after age 59 or paid like a life annuity

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34
Q

Once a policy is classified as a MEC

A

it can never revert back to an ordinary whole life policy with regard to tax treatment.

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35
Q

Qualified and none qualified annuity receives tax deferral during the

A

accumulation phase

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36
Q

Contributions to qualified individual (employee- sponsored annuity

A

tax deductible

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37
Q

Cost basis of an annuity are generally

A

The amounts paid

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38
Q

penalties are assessed on annuities

A

for premature distribution

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39
Q

Generally taxed on a last in first out basis, accumulation or interest earned is considered with drawn first win distributions are made

A

Prematurely withdrawn amount (10 percent federal age base tax penalty )

40
Q

Total investment of a contract divided by the expected return

A

Exclusion ration

41
Q

If a owner dies during the accumulation phase and prior to the annuity phase

A

Beneficiary will receive the greater of the accumulated value of the annuity or the amount of contribution premium

42
Q

If the owner dies prior to the annuity phase the entire interest in the contract must be distributed with in fiver years following the owner death or contract surrender

A

In less the beneficiary chooses to annuitize the contract proceeds with in one year of the owners death.

43
Q

No matter the amount of premiums paid

A

The beneficiary will receive the face amount on a policy

44
Q

A corporation may purchase a annuity. However it must identify a natural person as a annuitant. If a firm fails to do this which of the following will occur.

A

Interest earned during the year will be taxable to the firm

45
Q

Which of the following is not true in regard to the 1035 exchange

A

Once begun the exchange must be completed with in 30 days

46
Q

The continue increase of cash value in a whole life policy

A

may be subject to taxation if withdrawn if the policy fails the seven pay test.

47
Q

Plans approved by the IRS to receive favorable tax treatment.

A

Qualified plans

48
Q

Contributions are generally tax deductible

A

Qualified Plan

49
Q

Contributions made by employers to qualified plans are

A

Tax deductible

50
Q

Contributions made to qualified plans are

A

not counted as income

51
Q

Funds accumulate in the plan are taxed deferred, contributions and earnings are exempt from current income taxation

A

Qualified Plan

52
Q

Any distributions from qualified plans prior to 59 are taxed

A

on pro rata- recovery basis

53
Q

10% Penalty is also imposed on

A

premature distribution (except of death, disability divorce financial hardship, loans or qualified roll over)

54
Q

Age related distributions made after age 59

A

qualified retirement distributions

55
Q

Transfer of one qualified plan to another

A

Rollover

56
Q

Any distribution that represents an employee cost basis is

A

Tax free

57
Q

Any amount received as employer compensation or appreciation will be

A

taxed as ordinary income

58
Q

If a employee or individual withdraws such funds in order to deposit them in another plan

A

20% percent withholding tax may apply

59
Q

A rollover must be effected with in how many days

A

60

60
Q

an investment vehicle available to all individuals who posses earned income

A

(IRA ) Individual Retirement Account

61
Q

Characterized by heavy withdraw penalties in the early years after they are purchased even if funds are withdrawn to be roll over

A

IRA

62
Q

Annual Contributions to an IRA may be equal to 100% income earned not to exceed

A

5,500 per year (above 50 6,500

63
Q

IRAs may be rolled over to another high yield account with out

A

tax penalty (long as its with in 60 days)

64
Q

IRA are allowed to be withdrawn up to 10,000 in order to

A

to buy his or her first home

65
Q

Excess contributions to a IRA

A

subject to a 6% penalty

66
Q

A tax deduction is available to individuals who contribute to an IRA and is not covered by an IRS qualified pension plan or an employer sponsored retirement program no matter what their annual taxable income

A

True

67
Q

allows investors age 50 and older to add additional 1,000

A

catch up provision

68
Q

Coverdell education savings account were a investor can make nondeductible contributions up to 2,000 per child up to the age eighteen

A

Education IRA

69
Q

allows one to make nondeductible contributions which are tax free when withdrawn

A

Roth IRA

70
Q

Beneficial for individuals with large savings that may leave them in the same or even higher tax bracket after that retire.

A

Roth IRA

71
Q

Advantageous for those who continue to work after the age of 70 who prefer to daily IRA distribution

A

Roth IRA

72
Q

Penalty free withdraws may be made prior to age 59 for qualified education expenses for the taxpayer, spouse, or any child or grandchild

A

Roth IRA

73
Q

Roth IRA Federal income tax and penalty free distributions may be made in the following situations

A

Roth must have existed for five years; after age 59; death or disability; first time home buyers expenses

74
Q

Contribution retirement vehicles for small business, self employed individuals and their eligible employees.

A

Simplified Employee Pension (SEP)

75
Q

employer Sponsored IRA

A

SEP Simplified Employee Pension

76
Q

The amount of employer SEP contributions permitted each year is the lesser of 25% of earned income not exceed

A

54,000

77
Q

Offer the ease of administration with minimal reporting requirements

A

(SEP) Simplified Employee Pension

78
Q

Contributions for employees are allowed up

A

18,000

79
Q

Records the amount of contributions on the appropriate area on his or her tax form

A

( SEP) Simplified Employee Pension

80
Q

Non corporate retirement savings vehicle

A

KEOCH Plans or 11R-10 plan

81
Q

designed for self employed or sole proprietor

A

KEOCH Plan

82
Q

Characterized by strict reporting, great deal of documentation must be provided to the IRS for as contributions and deductibles

A

KEOCH Plan

83
Q

allows contributions by employees to be invested into various vehicles

A

401K

84
Q

Contributions made to this qualified plan are excluded from the individuals gross income up to a maximum limit The limit is adjusted annually for inflation.

A

401K

85
Q

employee conurbation may be match my the employer which reduces the employees tax ability as well

A

Salary Reduction (401K)

86
Q

Contribution in which employer profits are shared with employees, no definite benefits and if no profits are made no contributions will be made.

A

Profit Sharing Plan

87
Q

Plans are employer sponsored and maintained utilized by firms with larger number of employees

A

Pension Plans

88
Q

Identifies the amount of installment benefit to be paid to the retired employee upon retirement.

A

define benefit

89
Q

Characterized by an individual account for each employee

A

a defined contribution plan

90
Q

allows any state or local government entity to provide a deferred compensation program for its employees

A

Section 457 (Deferred Compensation)

91
Q

The employer agrees with the employee to reduce his or her pay by a specified amount and invest the deferrals in one or more investment outlets that may include insurance outlets.

A

Section 457 (fixed variable accounts)

92
Q

The difference between 457 and 403b is

A

Investments in the 457 plan are not owned by the employer

93
Q

Retirement plan is set for qualified or tax exempt organizations

A

403b (Tax Sheltered Annuities) TSA

94
Q

403b plan is available to

A

Teachers, social workers, collage professors, and non profit organizations

95
Q

funds may be contributed to a qualified annuity with pre tax contributions which are referred to

A

before tax dollars

96
Q

TSA is characterized as a salary reduction rather

A

tax deduction

97
Q

Savings incentive match plan for employees who work for small employers 100 or less and received a least 5000 in compensation.

A

Simple Plan

NY Life and Health Insurance (12 decks)

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