Free Federal Tax Considerations Practice Questions
Minnesota Life, Accident & Health exam — 45 practice questions.
Subtopics: Section 1035 exchanges, Life insurance, Annuities, Premium deductibility, Policy dividends, Disability benefits, Group term life, Executive bonus, Qualified plans, Nonqualified plans, Health insurance, Disability income, HSA, Long-term care, 1035 exchanges
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Sample questions & answers
1. Under Internal Revenue Code section 1035, which exchange can be made without recognizing gain or loss?
An annuity contract for another annuity contract
26 U.S.C. 1035 allows tax-free exchanges of a life policy for another life, endowment, annuity, or qualified LTC contract, and of an annuity for another annuity or a qualified LTC contract, but not an annuity for life insurance.
2. Life insurance death benefits paid to a named beneficiary in a lump sum are generally:
Received income-tax-free
Lump-sum death benefits are generally received free of federal income tax by the beneficiary.
3. The growth of cash value inside a permanent life insurance policy is generally:
Tax-deferred while it remains in the policy
Cash value grows tax-deferred; a taxable gain may arise only if the policy is surrendered for more than its cost basis.
4. When annuity income payments are received, the portion representing investment earnings is:
Taxable as ordinary income
Earnings in an annuity are taxed as ordinary income when distributed; the exclusion ratio determines the taxable portion.
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Practice: Federal Tax Considerations
Answer choices are shuffled every time, and every question comes with an explanation.
Practice questions are study aids generated for exam preparation and are not actual exam questions. Content is provided for educational purposes and is not legal advice. Verify current statutes, rules, and exam specifications with the Insurance Department and the exam administrator before relying on it.
