Life & Health Insurance Exam Premium Calculations and Tax Treatment

Question 1

Life insurance death benefits paid to a named beneficiary are generally treated as:

Accepted Answer

Income tax-free under IRC Section 101(a)

Answer

Under IRC Section 101(a), life insurance death proceeds paid by reason of the insured's death are generally excluded from the beneficiary's gross income.

Question 2

Which factor does NOT directly affect the net premium calculation for a life insurance policy?

Accepted Answer

Expense loading

Answer

Net premium is calculated using only mortality and interest assumptions; expense loading is added separately to arrive at the gross premium.

Question 3

Employer-paid group term life insurance premiums for coverage up to what amount are excluded from an employee's taxable income?

Accepted Answer

$50,000

Answer

Under IRC Section 79, employer-paid group term life insurance premiums for the first $50,000 of coverage are excluded from the employee's gross income.

Question 4

What is 'level premium' in permanent life insurance?

Accepted Answer

Premiums that remain the same throughout the premium-paying period

Answer

Level premiums are fixed at policy issue and do not change, allowing the insurer to collect more than mortality costs early on and build cash value to subsidize later higher-risk years.

Question 5

A health savings account (HSA) contribution made by an individual is:

Accepted Answer

Tax-deductible and grows tax-free if used for qualified medical expenses

Answer

HSA contributions are tax-deductible, grow tax-deferred, and are withdrawn tax-free when used for qualified medical expenses.

Life & Health Insurance Exam Practice Test

Life & Health Insurance Exam Practice Test

Life & Health Insurance Exam Premium Calculations and Tax Treatment