Life Insurance Policies
Why does a limited payment whole life policy need testing against the modified endowment contract rules?
Answer and explanation
Answer: C. Funding a policy quickly can exceed the seven pay limit, which turns it into a modified endowment contract with gain-first taxation of loans and withdrawals and a possible early distribution penalty. The death benefit exclusion itself is unaffected, and life premiums are not deductible in any case.Source: PSI — New York DFS Insurance Candidate Information Bulletin — Outline, limited payment and modified endowment
More life insurance policies questions
- When does a joint life (first-to-die) policy pay its death benefit?
- When does a survivorship life (second-to-die) policy pay its death benefit?
- Which client is level premium term suited to?
- Which combination of features defines a variable universal life (VUL) contract?
- Which combination of features most clearly signals variable universal life rather than ordinary whole life?
- Which description best distinguishes indexed universal life from variable universal life?
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