Question

The minutes remaining now is: 73 Select your answer by clicking on the radio bullon inal corresponos lo mne etter or your choice. You may check une box next to the question number to mark it for review. Prev - allows you to go back to the previous question, Next - saves your answer and allows you to go to the next question. View Summary - allows you to view your answer choices and those you marked for review. Submit Now - submits your answer choices for grading. Close - exits the exam. Trevor contacts Shanae, his insurance agent, for advice regarding his universal life (UL) insurance policy. Trevor wife Maria, is indicated as revocable beneficiary on the plan. The policy has a face value of $250,000 and an account value of $35,000. Trevor asks Shanae which of the following events could have potential tax consequences as either a deemed or actual policy disposition: 1. Trevor changes the beneficiary from his wife Maria to his son Alberto ii. Trevor takes out a policy loan of $30,000. iii. Trevor transfers ownership of the policy to his wife Maria. iv. Trevor exercises his guaranteed insurability benefit rider and increases his face value by $50,000 i and ii i and iv ii and ili ili and iv a) Ob) c) d) Next View Summary Close L e itse Life Insurance.. itse Student Logon... DELL

Answer 1

Answer is D

Changing the beneficiary is a tax-neutral event. If you keep ownership of the policy and simply name a new beneficiary to receive the insurance proceeds at your death, then the new beneficiary will receive the proceeds income tax-free when you die.

Taking out a loan against your life insurance policy does not count as taxable income. However, if your policy lapses, the loan becomes a taxable event and then you'll have to pay tax on the loan plus interest at your regular income tax rate.

A life insurance policy transfer may trigger a policy gain, which is taxable in the hands of the transferor. The policy gain is equal to the proceeds of disposition minus the adjusted cost basis of the interest in the life insurance policy. This gain is fully taxable as ordinary income

Exercising guaranteed insurability benefit rider and increasing face value will tax implications.