Life Insurance Policies
An owner aged fifty takes a loan against a single premium whole life policy. What is the tax result?
Answer and explanation
Answer: C. Because the contract is a modified endowment, a loan is treated as a distribution, taxed on a gain-first basis, with a ten per cent additional tax before age fifty-nine and a half. Loans against a policy that is not a modified endowment are not taxable while it stays in force.Source: PSI — New York DFS Insurance Candidate Information Bulletin — Outline, single premium and loans
More life insurance policies questions
- A client wants cover that will still be in force at age ninety and a value that can be reached in the meantime. Which is indicated?
- A client wants flexible premiums and an adjustable death benefit, but also wants to place policy value in equity and bond portfolios and accepts that those values can rise or fall with market performance. Which explanation best distinguishes the product from non-variable universal life?
- A convertible term policy says conversion is available only under the policy's stated conversion provision. The owner asks for permanent coverage beyond the policy's allowed conversion amount without underwriting. What is the best response?
- A lender tells a borrower the loan will be approved only if credit life insurance is purchased from it. What is the objection?
- A married couple buys a survivorship life policy for estate tax planning. The husband dies first. What happens to the policy?
- A married couple expect estate taxes to fall due only after both have died. Which policy matches that liability?
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