Financial Advisor Insurance Planning for Financial Advisors 4

Question 1

A client owns a $500,000 permanent life insurance policy with a $120,000 cash value. If the policy lapses, what is the tax consequence?

Accepted Answer

Ordinary income tax on the gain above basis in the policy

Answer

When a permanent life policy lapses with a gain (cash value exceeds premiums paid), the gain is taxable as ordinary income.

Question 2

Which type of annuity rider guarantees the owner can withdraw a set percentage of the benefit base annually regardless of account performance?

Accepted Answer

Guaranteed Minimum Withdrawal Benefit (GMWB)

Answer

A GMWB rider guarantees systematic withdrawals of a specified percentage of the benefit base even if the account value drops to zero.

Question 3

A 45-year-old client wants long-term care coverage but is concerned about losing premiums if they never use benefits. Which product best addresses this concern?

Accepted Answer

A linked-benefit (hybrid) life/LTC policy

Answer

Hybrid life/LTC policies provide a death benefit if LTC is never used, so premiums are not 'lost' unlike traditional stand-alone LTC policies.

Question 4

Under the HIPAA provisions, which statement about long-term care insurance is CORRECT?

Accepted Answer

Tax-qualified LTC premiums may be deductible as a medical expense subject to AGI limits

Answer

HIPAA established tax-qualified LTC policies whose premiums are deductible as medical expenses to the extent they exceed 7.5% of AGI, subject to age-based limits.

Question 5

A business owner wants key-person life insurance. How are premiums and death benefits typically treated for a C-corporation?

Accepted Answer

Premiums are not deductible; death benefit is generally received income-tax-free

Answer

Key-person life insurance premiums paid by a C-corporation are not deductible, but the death benefit proceeds are generally received income-tax-free by the corporation.

Financial Advisor Practice Test

Financial Advisor Practice Test

Financial Advisor Insurance Planning for Financial Advisors 4