taxes

What determines if your policy is considered a life insurance policy or a MEC policy

The seven pay test

What does MEC stand for

Modified endowment contract

How is a modified endowment contract taxed

Mec is taxed as an annuity

True or false? The cash value of a life insurance policy can be larger than the death benefit

False the death benefit must always be larger than the cash value

What portions of an insurance policy are always tax-free

Death benefit, dividends, policy loans

Are you taxed on a cash surrender of an insurance policy

You will be taxed on any amount over the amount of premiums paid. AKA any gains

Between the day of death and the actual day of payout of the death benefit, what happens to the policy

It will accrue taxable interest

What is the tax benefit of an insurance policy

Most payments are tax-free

When you receive payouts from an IRA how is it taxed

Distributions from an IRA will always have income tax

How are taxes handled on a MEC

Mecs are taxed like an annuity

How are annuities taxed

Last end first out( lifo) which means interest always paid out first and interest is always taxable

If Susan decides to withdraw a portion of her annuity at age 52, how will she be taxed

She will be taxed on any interest payment received since annuities are lifo and will receive a 10% tax penalty for withdrawing before age 59 and 1/2