Premium Calculations and Tax Treatment Flashcards
6 cards from real Life & Health Insurance Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Premium Calculations and Tax Treatment flashcards as text
Life insurance death benefits paid to a named beneficiary are generally treated as:
Answer: Income tax-free under IRC Section 101(a)
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.
Which factor does NOT directly affect the net premium calculation for a life insurance policy?
Answer: Expense loading
Net premium is calculated using only mortality and interest assumptions; expense loading is added separately to arrive at the gross premium.
Employer-paid group term life insurance premiums for coverage up to what amount are excluded from an employee's taxable income?
Answer: $50,000
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.
What is 'level premium' in permanent life insurance?
Answer: Premiums that remain the same throughout the premium-paying period
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.
A health savings account (HSA) contribution made by an individual is:
Answer: Tax-deductible and grows tax-free if used for qualified medical expenses
HSA contributions are tax-deductible, grow tax-deferred, and are withdrawn tax-free when used for qualified medical expenses.
Which premium mode typically results in the highest total annual cost to the policyholder?
Answer: Monthly
Monthly premium payments result in the highest total annual cost because insurers add a modal factor for the administrative costs and time value of money on more frequent payments.