LC 4 TAXATION OF LIFE INSURANCE (7 of 9)

Premium

Generally speaking, the following taxation rules apply to life insurance policies: ______________ are not tax deductible;

tax free

taxation rules apply to life insurance policies: Death benefit are tax ___________ if taken as a ump sum distribution to a named beneficiary

interest

The Life insurance death benefit's principal is tax free; ________________ is taxable if paid in installments (other than lump sum)

dividends

Here are 5 ways in which policyowners may receive living benefits from a permanent policy. 1 of 5; ____________________ are a return of unused premiums.

income

dividends are a return of unused premiums, they are not considered ______________ for tax purposes.

ordinary income

When dividends are left with the insurer to accumulate interest, the interest earned on the dividend account is subject to taxation as _____________income each year interest is earned, whether or not the interest is paid out to the policyowner.

paid

the interest earned on the dividend account is subject to taxation as ordinary income each year interest is earned, whether or not the interest is ________ out to the policyowner.

cash value

Here are 5 ways in which policyowners may receive those living benefits from the policy. 2 of 5; Any __________ value accumulations in the policy can be borrowed against by the policyowner, or may be paid to the policyowner upon surrender of the policy.

deferred

Cash values grow tax _________________.

surrender

Upon ______________ or endowment, any cash value in excess of cost basis (premium payments) is taxable as ordinary income.

cost basis

____________ basis means premium payments, which have already been taxed

death

Upon _______________, the face amount is paid, and there is no more cash value.

income tax

Death benefits generally are paid to the beneficiary income __________ free.

policy loans

Here are 5 ways in which policyowners may receive those living benefits from the policy. 3 of 5; Policy ________________ allow policyowner may borrow against the policy's cash value.

not

Money borrowed against the cash value is ________ income taxable

charges interest

Money borrowed against the cash value is not income taxable; however, the insurance company charges _____________________ on outstanding policy loans.

owner

Policy loans, with interest, can be repaid in any of the following ways: • 1 of 3 is by the ___________ while the policy is in force.

subtracted

Policy loans, with interest, can be repaid in any of the following ways: 2 of 3 At policy surrender or maturity, ___________________ from the cash value.

death benefit

Policy loans, with interest, can be repaid in any of the following ways, 3 of 3, At the insured's death, subtracted from the ______________ benefit.

surrenders

Here are 5 ways in which policyowners may receive those living benefits from the policy. 4 of 5, When a policyowner ____________________ a policy for cash value

exceeds

When a policyowner surrenders a policy for cash value, some of the cash value received may be taxable as income if the cash surrender value _________________ the amount of the premiums paid for the policy.

partial

When a person takes some of the money out of the cash value this is called a ________________ surrender

reduced

When the owner withdraws cash value from a universal life policy (partial surrender), both the cash value and the death benefit are _________________ by the surrender.

accelerated benefits

Here are 5 ways in which policyowners may receive those living benefits from the policy. 5 of 5, ________________ benefits are paid under a life insurance policy to a terminally ill insured.

free

When accelerated benefits are paid under a life insurance policy to a terminally ill insured, the benefits are received tax ________.

gross income

When accelerated benefits are paid to a chronically ill insured, these benefits are tax free up to a certain limit. Any amount received in excess of this dollar limit must be included in the insured's __________ income.

transfer for value

Life insurance proceeds paid to a named beneficiary are generally free of federal income taxation if taken as a lump sum. An exception to this rule would apply if the benefit payment results from a ________________ for value.

sold

a transfer for value, meaning the life insurance policy is ____________ to another party prior to the insured's death.

both

With settlement options, when the beneficiary receives payments consisting of _______ principal and interest, the interest portion of the payments received is taxable as income.

employer

The premiums that an employer pays for life insurance on an employee, whereby the policy is for the employee's benefit, are tax deductible to the _____________________ as a business expense.

50K

If the group life policy coverage is $_________ or less, the employee does not have to report the premium paid by the employer as income (not taxable to the employee).

beneficiary

Any time a business is the named _______________ of a life insurance policy, or has a beneficial interest in the policy, any premiums that the business pays for such insurance are not tax deductible.

key employee

When a business pays the premiums for any of the following arrangements, the premiums are not deductible: ,1 of 3, K____________ ______________

Stock Redemption

when a business pays the premiums for any of the following arrangements, the premiums are not deductible: 2 of 3 ___________ _______________ or entity purchase agreement.

Split dollar insurance

Therefore, when a business pays the premiums for any of the following arrangements, the premiums are not deductible: 3 of 3, ____________ _______________ insurance.

same

The cash value of a business owned life insurance policy or an employer provided policy accumulates on a tax-deferred basis and is taxed in the _____________ manner as an individually owned policy.

may deduct

Policy loans are not taxable to a business. Unlike an individual taxpayer, a corporation _____ deduct interest on a life insurance policy loan for loans up to $50,000.

individually owned

Policy death benefits paid under a business owned or an employer provided life insurance policy are received income tax free by the beneficiary in the same manner as in individually ______________ policies.

employee

If the general requirements for qualified plans are met, the following tax advantages apply: 1 of 3, Employer contributions are tax deductible to the employer, and are not taxed as income to the ______________

earning

If the general requirements for qualified plans are met, the following tax advantages apply, 2 of 3, The earnings in the plan accumulate tax deferred;

lump sum

If the general requirements for qualified plans are met, the following tax advantages apply, 3 of 3, ___________ __________ distributions to employees are eligible for favorable tax treatment.