All of the following statements about the income tax treatment of individually-purchased life insurance are true EXCEPT A) policyowner dividends are received tax-free. B) the annual increase in cash value is not taxable while the policy remains in force. C) premiums paid for individual life insurance are a tax deductible expense. D) life insurance proceeds […]
The average annual rate of return on a cash-value policy if it is held a specified number of years is called the policy’s A) net present value. B) interest-adjusted cost. C) benchmark cost. D) Linton yield. ANSWER Answer: D
Life insurance policy reserves A) are always equal to the policy’s cash surrender value. B) are a major asset of life insurance companies. C) are paid to the beneficiary when the insured dies. D) are a major liability of life insurance companies. ANSWER Answer: D
All of the following statements about the tax treatment of life insurance purchased by an individual are true EXCEPT A) The annual increase in the cash value is currently taxable. B) Premium payments are not tax deductible. C) Death benefits received in a lump sum are not taxable income. D) Policyowner dividends are not considered […]
Which of the following statements is (are) true about the federal estate tax? I. The gross estate can be reduced by a number of deductions. II. If the person who died had any ownership interest in a life insurance policy at the time of death, the proceeds are included in the gross estate for federal […]
The policy reserve at the end of any given policy year is called the A) terminal reserve. B) unearned premium reserve. C) mean reserve. D) initial reserve. ANSWER Answer: A
To level a net single premium (NSP), the NSP is divided by A) the maximum number of years the premium could be paid. B) the ordinary life annuity factor for the premium payment period. C) the present value of a life annuity due of $1 for the premium payment period. D) the deferred life annuity […]
The gross premium is defined as A) the net premium plus the loading allowance. B) the terminal reserve plus the commission. C) the net premium minus expenses. D) the sum of all acquisition expenses. ANSWER Answer: A
The difference between the present value of future benefits payable under a life insurance policy and the present value of net premiums for the policy is the policy’s A) retrospective reserve. B) policyholders surplus. C) prospective reserve. D) admitted assets. ANSWER Answer: C
Purposes of life insurance policy reserves include which of the following? I. Legal test of the insurer’s solvency II. Formal recognition of the obligation to pay future claims A) I only B) II only C) both I and II D) neither I nor II ANSWER Answer: C
