Premium Calculations and Tax Treatment Flashcards
6 cards from real Life & Health Insurance Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Premium Calculations and Tax Treatment flashcards as text
The 'net amount at risk' in a whole life policy refers to:
Answer: The difference between the face amount and the accumulated cash value
The net amount at risk is the insurer's true exposure, calculated as the face amount minus the policy's cash value at any given time.
Pre-tax contributions to an employer-sponsored flexible spending account (FSA) must be used by the plan year end or they are:
Answer: Forfeited under the 'use-it-or-lose-it' rule (with limited grace period exceptions)
FSA funds are subject to the use-it-or-lose-it rule; unused balances are forfeited, though the IRS permits a 2.5-month grace period or a limited $610 rollover at the employer's option.
For a life annuity with payments already in the distribution phase, the 'exclusion ratio' determines:
Answer: The portion of each annuity payment that is tax-free return of investment
The exclusion ratio (investment ÷ expected return) calculates the non-taxable portion of each annuity payment that represents the return of the original cost basis.
Which statement about business-owned life insurance (BOLI) is correct regarding tax treatment?
Answer: Death proceeds are generally received income-tax-free by the business
Death benefits from BOLI policies are generally received income-tax-free by the business under IRC Section 101(a), subject to the employer-owned life insurance notice and consent rules.
The 'waiver of premium' rider causes the insurer to:
Answer: Continue the policy in force without premium payments if the insured becomes totally disabled
The waiver of premium rider waives future premium obligations if the insured suffers a qualifying total disability, keeping the policy active without out-of-pocket cost.
Under the '1035 exchange' rules, which transaction is NOT a qualifying tax-free exchange?
Answer: Annuity exchanged for a life insurance policy
Section 1035 does not permit a tax-free exchange of an annuity for a life insurance policy; only exchanges moving to equal or lesser tax-advantaged status qualify.