1. Your client, Ning, is deciding whether he should transfer his whole life policy purchased in 1999...
Question:
1. Your client, Ning, is deciding whether he should transfer his whole life policy purchased in 1999 to his wife Melyssa. Ning's adjusted cost basis (ACB) is $72,000 and his cash surrender value (CSV) is $96,000. His calculation shows that she should pay him $20,000 to minimize tax consequences. Which of the following statements concerning the assignment of Ning's policy to his spouse Melyssa is correct?
A. Ning's proceed will be $20,000
B. Ning's proceed will be $24,000
C. Ning's loss of $4,000 will be denied
D. Ning's policy gain will be $0
2. Veronica is a life insurance agent and she meets with a prospective client, Jason. After the necessary due diligence. Veronica recommends that Jason purchase a participating whole life policy, citing the potential benefits of policy dividends. When Jason asks Veronica about the dividend payment options, which of the following is CORRECT response that Veronica should provide Jason?
A. Instead of receiving the dividends., Jason can apply the dividends towards his premiums, thereby reducing his premiums accordingly.
B. The dividends can be invested in a separate accumulation account and both the dividends and the growth will be non-taxable and can be withdrawn at any time.
C. Jason can increase the amount of insurance by using the dividends to buy paid up additions provided that he has medical evidence of insurability
D. Jason can elect to receive the dividends, which are taxed more favourably than ordinary income, and spend or invest the money however he chooses.
3. Paul is in his mid-40s, a non-smoker, and in good health having just passed his annual medical for his private pilot’s licence renewal. He files strictly on a recreational basis and averages approximately 250 hours per year of flight time. He holds night-flying, mountain flying, and instrument flight rules endorsements. With over2,100 hours in his log-book for his occupation and a managing partner for a national firm. You have documented everything including an aviation questionnaire, copies of the relevant pages from his log-book, and proof of his qualifications. Which of the following would be the MOST likely outcome when Paul applies for disability insurance?
- Paul will be declined disability insurance coverage because recreational flying is considered high risk.
- Paul’s premiums will be rated because his flight volumes are consistently high.
- Paul’s recreational flying will not impact the policy because of his proven experience and safety record.
- Paul’s best-case scenario would be an execution rider denying benefits from any claim resulting from flying.
4. Beau is a licensed life insurance agent and he comes across the death notification of one of his clients, Victor. Beau sold Victor a life insurance policy that named his daughter, Tessa, as the beneficiary. Which of the following statements concerning Beau's responsibility in the claims process is CORRECT?
A. Beau is responsible for confirming that the policy was in force at the time of death.
B. Beau should not contact Tessa to initiate the claim under privacy requirements.
C. Beau should inform Tessa that Victor's estate will be considered the claimant for his policy.
D. Beau 's role to facilitate the claims process by providing forms and assisting in their completion.
Federal Tax Research
ISBN: 9781285439396
10th edition
Authors: Roby Sawyers, William Raabe, Gerald Whittenburg, Steven Gill