Insurance MCQ

If an IRA annuitant pays the entire fund's premiums before her death, what effect will this have on her estate when she dies A) The IRA must be converted to an annuity policy for the listed beneficiary. B) The entire value of the premiums and benefits will be included. C) Only partial value of the premiums will be included. D) IRA funds will be redirected to the federal government Answer: The entire value of the premiums and benefits will be included

An insured has a Modified Endowment Contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true A) He will not have to pay a penalty, regardless of his age. B) He cannot withdraw money from his MEC before age 59½. C) He will have to pay a penalty if he is younger than 59½. D) He will have to pay a penalty regardless of his age Answer: He will have to pay a penalty if he is younger than 59½

An insured had paid only part of her total number of IRA premiums before she died. What effect will this have on the insured's estate A) Only the premiums paid will be included in the estate. B) Any IRA funds will be directed to the state. C) IRAs have no effect on estates. D) Premiums left unpaid will be deducted from the estate Answer: Only the premiums paid will be included in the estate

J transferred his life insurance policy to his son two years before his death. Which of the following is true A) The interest portion of the policy will be included in J's taxable estate. B) The unpaid premiums on the policy will be deducted from J's taxable estate. C) Because the policy has been transferred, it will not be included in J's taxable estate. D) The entire face value of the policy will be included in J's taxable estate Answer: The entire face value of the policy will be included in J's taxable estate

What is the tax consequence of amounts received from a Traditional IRA after the money was left in the tax-deferred account by the beneficiary A) Capital gains tax on distributions plus 10% penalty. B) Income tax on distributions and no penalty. C) Income tax on distributions plus 10% penalty. D) Capital gains tax on distributions and no penalty Answer: B

A policyowner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This nontaxable transaction is called A) 1035 exchange. B) Qualified distribution. C) Premature distribution. D) Rollover. Answer: 1035 exchange

What type of annuity activity will cause immediate taxation of the interest earned A) Changing a settlement option B) Failing to make a planned contribution C) Surrendering the annuity for cash D) Using the contract as collateral for a loan Answer: Surrendering the annuity for cash

An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer A) $10,000, no tax consequence B) $8,000, no tax consequence C) $8,000, tax on growth only D) $10,000, tax on growth only Answer: $10,000, no tax consequence

An applicant buys a nonqualified annuity, but dies before the starting date. For which of the following beneficiaries would the contract's interest NOT be taxable A) Charitable Organization B) Dependents C) Annuitant D) Spouse Answer: Spouse

An IRA uses immediate annuities to pay out benefits; the IRA owner is nearly 75 years old when he decides to collect distributions. What kind of penalty would the IRA owner pay A) 50% tax on the amount not distributed as required B) No penalties, since the owner is older than 59 ½ C) 10% for early withdrawal D) 15% Answer: 50% tax on the amount not distributed as required

For an individual who is NOT covered by an employer-sponsored plan, IRA contributions are A) Never tax deductible. B) Partially tax deductible depending on the income level. C) Tax deductible. D) Deducted based on the income level Answer: Tax deductible

Which of the following describes the tax advantage of a qualified retirement plan A) The earnings in the plan accumulate tax deferred. B) Distributions prior to age 59½ are tax deductible. C) Employer contributions are deductible as a business expense when the employee receives benefits. D) Employer contributions are not taxed when paid out to the employee Answer: The earnings in the plan accumulate tax deferred

When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income A) Both principal and interest B) Neither principal nor interest C) Principal only D) Interest only Answer: Interest only

When must an IRA be completely distributed when a beneficiary is not named A) December 31 of the year following the year of the owner's death. B) Due date of the deceased owner's final tax return including extensions. C) December 31 of the year that contains the fifth anniversary of the owner's death. D) Due date of beneficiary's tax return including extensions Answer: December 31 of the year that contains the fifth anniversary of the owner's death

Which of the following statements regarding the taxation of Modified Endowment Contracts is FALSE A) Distributions before age 59 1/2 incur a 10% penalty on policy gains. B) Policy loans are taxable distributions. C) Accumulations are tax deferred. D) Withdrawals are not taxable. Answer: Withdrawals are not taxable

During the accumulation period in a nonqualified annuity, what are the tax consequences of a withdrawal A) Both interest and principal are taxed; no other penalties are imposed. B) Neither interest nor principal is taxed, but penalties may be imposed. C) Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 ½. D) Nontaxable principal may be withdrawn first, but the 10% penalty will be imposed if under age 59 ½ Answer: Taxable interest will be withdrawn first and the 10% penalty will be imposed if under age 59 ½

Upon surrender of a life insurance policy, what portion of the cash value will be taxed? Answer: Only the portion in excess of the premium paid

If a retirement plan is 'qualified', what does that mean? Answer: The plan has favorable tax treatment.

What are the three types of social security benefits? Answer: Retirement, disability and survivors

If the beneficiary of a life insurance policy receives death benefit payments that consists of principal and interest, which position if any will be taxed? Answer: Interest only