Harold purchased a $250,000 universal life (UL) policy with a level death benefit plus account value option.
Question:
Harold purchased a $250,000 universal life (UL) policy with a level death benefit plus account value option. Harold bought the policy 7 years ago and named his adult daughter Corinne as the beneficiary. According to his most recent statement, the account value of his policy is $19,100 with an adjusted cost base (ACB) of $12,400. Harold has a marginal tax rate of 33%. When he asks his insurance agent about the tax consequences of his UL policy, which of the following is the CORRECT response that the agent should provide Harold?
a) If Harold were to die today, Corinne would receive a $269,100 tax-free benefit.
b) If Harold assigned his policy to Corinne, he would have tax owing of $1,105.50.
c) If Harold took a policy loan of $10,000, he would have tax owing of $3,300.
d) If Harold were to die today, Corrine would receive a benefit of $252,211 after tax.
Economics Principles and Policy
ISBN: 978-0538453653
12th edition
Authors: William J. Baumol, Alan S. Blinder