Life Insurance Policy Provisions, Options, and Riders
In what order are withdrawals from a universal life policy that is not a modified endowment contract generally taxed?
Answer and explanation
Answer: D. Life insurance that is not a modified endowment contract follows first-in, first-out, so the owner recovers premiums paid before touching taxable gain. Gain-first treatment is what applies to a modified endowment contract and to annuities.Source: PSI — New York DFS Insurance Candidate Information Bulletin — Outline, withdrawals and taxation
More life insurance policy provisions, options, and riders questions
- How does the interest only settlement option work?
- How does the reduction of premium dividend option work?
- How does waiver of cost of insurance differ in effect from waiver of premium on a fixed whole life policy?
- How is a children's term rider ordinarily priced and applied?
- How is the amount of cover under a family term rider usually expressed?
- How is the interest credited under the accumulation at interest dividend option treated for tax?
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