Free Federal Tax Considerations Practice Questions
Wyoming Life, Accident & Health exam — 48 practice questions.
Subtopics: Modified endowment contract, 1035 exchange, Death benefit taxation, Cash value growth, 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
Read the Federal Tax Considerations study guide
Sample questions & answers
1. A life policy funded so rapidly that it fails the federal seven-pay test is classified as a:
Modified endowment contract
A policy that fails the seven-pay test becomes a modified endowment contract, changing the tax treatment of distributions.
2. Exchanging one life insurance policy for another without immediate taxation of any gain may be accomplished through:
A Section 1035 exchange
A Section 1035 exchange allows a tax-free transfer between qualifying life insurance contracts.
3. Life insurance death proceeds paid in a lump sum to a named beneficiary are generally:
Received income-tax-free
Lump-sum life insurance death benefits paid to a named beneficiary are generally received free of federal income tax.
4. While cash value remains inside a permanent life policy, the growth of that cash value is generally:
Tax-deferred while it remains in the policy
Cash value generally accumulates on a tax-deferred basis as long as it stays within the policy.
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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.
