Life & Health Insurance Exam QUESTIONS AND ANSWERS LATEST UPDATE 2024/2025 ALL ANSWERS 100, Exams of Nursing

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Hazard - CORRECT ANSWERS an increase in the chance of loss Moral hazard - CORRECT ANSWERS arise from people's character (faking a loss) Morale hazard - CORRECT ANSWERS state of mind or careless attitude (accidentally leaving door unlocked) Methods of handling risk - CORRECT ANSWERS STARR Share, transfer, avoid, retain, reduce The law of large numbers - CORRECT ANSWERS the larger the group, the more accurately losses can be predicted Elements of insurable risk - CORRECT ANSWERS CANHAM Calculable, affordable, non-catastrophic, homogenous, accidental, measurable Adverse selection - CORRECT ANSWERS tendency for higher-risk individuals to get and keep insurance Reinsurance - CORRECT ANSWERS an insurance company (ceding) pays another insurance company (reinsurer) to assume some risk in the event of a catastrophic loss Facultative reinsurance - CORRECT ANSWERS reinsurer evaluates each risk before allowing the transfer Insurance - CORRECT ANSWERS transfer of risk Speculative risk - CORRECT ANSWERS has a possibility of both loss and gain Pure risk - CORRECT ANSWERS only has a possibility of loss (no gain)

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Exposure - CORRECT ANSWERS risks for which an insurance company would be liable expressed in units Peril - CORRECT ANSWERS cause of a loss Treaty reinsurance - CORRECT ANSWERS reinsurer accepts all risk of a certain type from the ceding company Stock insurer - CORRECT ANSWERS insurance company owned by shareholders who chose the board of directors taxable dividends can be paid from profits issues non-participating (non-par) policies Mutual insurer - CORRECT ANSWERS no shareholders, rather policyowners who chose the board of directors nontaxable dividends can be paid from profits (return of excess premium) issues participating (par) policies Fraternal Benefit Societies - CORRECT ANSWERS provides insurance and other social benefits to members members own certificates

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Reciprocal insurer - CORRECT ANSWERS unincorporated group of people that insure each other's losses members are subscribers each member is assessed with an equal amount of a claim to pay in the event of a loss run by an attorney-in-fact Risk Retention Group - CORRECT ANSWERS liability insurance company created for policyholders from the same industry (auto industry RRG) Lloyd's Association - CORRECT ANSWERS insurance provided by individual underwriters rather than companies each underwriter is personally liable for the risks they insure Self-insurance - CORRECT ANSWERS business that pays its own claims risk retention Residual insurance market - CORRECT ANSWERS insurance from the state or federal government Domestics. vs. foreign vs. alien insurers - CORRECT ANSWERS an insurer that writes business in... domestic- home state foreign- another state alien- another country

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Certificate of Authority - CORRECT ANSWERS state license for an insurance company admitted/authorized/approved- licensed in state nonadmitted/unauthorized/unapproved- not licensed. sometimes allowed to insure surplus risks Surplus lines insurer - CORRECT ANSWERS insurance sold by nonadmitted insurers from a state's approved surplus insurers list can only be sold to high risks insureds can't be purchased just due to being cheaper than insurance from admitted insurers 4 different types of insurance agents - CORRECT ANSWERS 1. independent agents

2. exclusive/captive agents
3. general agents
4. direct writing companies Independent agent - CORRECT ANSWERS reps more than 1 company General agent - CORRECT ANSWERS recruits other agents that actually sell the insurance Direct writing companies - CORRECT ANSWERS pays salaries to the employees selling the insurance (vs. commission) Direct response insurance - CORRECT ANSWERS no agent involved. insurance is sold directly by the company to the public Agency - CORRECT ANSWERS relationship in which one person (agent) is authorized to represent another (principal)

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Law of agency (insurance) - CORRECT ANSWERS contracts made by the agent are considered to be contracts of the principal (insurance company) 3 types of authority - CORRECT ANSWERS express, implied, apparent express- written in contract implied- assumed in accordance with general business practices apparent- perceived authority 5 elements of a legal contract - CORRECT ANSWERS 1. consideration ($)

2. legal purpose
3. offer
4. acceptance
5. competent parties Adhesion - CORRECT ANSWERS insurer writes the contracts and the insured adheres any ambiguity favors the insured Aleatory - CORRECT ANSWERS unequal receipt of value small premium payments for a large amount of coverage Unilateral contract - CORRECT ANSWERS only one promise is made - insurance company promises to pay in the event of loss Personal contracts - CORRECT ANSWERS can't be assigned to someone else (home and auto)

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Indemnity - CORRECT ANSWERS contract restores the insured to a pre-loss condition, no better and no worse Warranty - CORRECT ANSWERS a promise Fraud and false statements punishment - CORRECT ANSWERS fine and/or imprisonment (10-15 years) Waiver - CORRECT ANSWERS voluntarily giving up a right Estoppel - CORRECT ANSWERS prevents a party from denying an action if it had been previously accepted Underwriting - CORRECT ANSWERS process of evaluating a risk to determine if it's acceptable based on insurance company guidelines Allowable backdating window - CORRECT ANSWERS 6 months allows a 41 year old to obtain coverage as if they were 40 Producer's report - CORRECT ANSWERS producer/agent records all relevant info on insured not seen by the proposed insured Conditional receipt - CORRECT ANSWERS premium is paid with application and insurance is effective as long as proposed insured is not uninsurable or substandard Binding receipt - CORRECT ANSWERS effective for 30 to 60 days from the date of application, even if the applicant is found uninsurable 3 parts to a life insurance application - CORRECT ANSWERS 1. general info

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2. health info
3. producer's report Attending Physician's Statement - CORRECT ANSWERS statement of medical condition from insured's doctor Who pays for medical exams during the underwriting process? - CORRECT ANSWERS the insurer HIPAA - CORRECT ANSWERS Health Insurance Portability and Accountability Act Medical Information Bureau (MIB) - CORRECT ANSWERS non-profit insurance trade association that houses underwriting info on applicants who apply for insurance goal is to reduce misrepresentation and fraud 4 classifications of insurance risk - CORRECT ANSWERS standard, preferred, substandard, declined Standard risks - CORRECT ANSWERS average health and normal life expectancy Preferred risks - CORRECT ANSWERS excellent health, risk of loss is below average Substandard risks - CORRECT ANSWERS aka rated below average health and short life expectancy can only be accepted by charging higher rates Insurable interest - CORRECT ANSWERS person applying for insurance must be at risk of suffering a significant loss if the insured dies

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the loss may be emotional or financial When must insurable interest exist? - CORRECT ANSWERS home and auto- time of loss life- time of application Human Life Value approach - CORRECT ANSWERS annual income x years to retirement Needs approach - CORRECT ANSWERS focuses on both cash and income needs Social Security blackout period - CORRECT ANSWERS time during which a surviving spouse is ineligible to receive SS survivor benefits stops after the youngest child turns 16, resume at age 60 2 types of buy-sell agreements - CORRECT ANSWERS entity plan and cross purchase plan entity plan- business owns policy on business owner's life cross purchase- each business owner owns a policy on the other business owners Executive bonus plans (section 162) - CORRECT ANSWERS employer pays a bonus to employee, who uses the bonus to pay for life insurance premiums. bonus is tax deductible to employer as salary and is included in the employees gross income employee has full access to living benefits during lifetime Industrial life insurance - CORRECT ANSWERS issues very small face amounts premiums paid weekly and collected in person

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Home service life insurance - CORRECT ANSWERS slightly larger than industrial life insurance policy owners encouraged to pay online so agent doesn't have to collect in person 3 premium elements - CORRECT ANSWERS 1- mortality 2- interest 3- expenses Net premium - CORRECT ANSWERS mortality - interest = net premium Gross premium - CORRECT ANSWERS mortality - interest + expenses = gross premium aka loaded premium. the amount the policy owner pays Decreasing term insurance - CORRECT ANSWERS death benefit decreases over policy's term, premium level Level term - CORRECT ANSWERS death benefit is level for the term, premium level Increasing term - CORRECT ANSWERS death benefit increases, premium increases Return of premium term - CORRECT ANSWERS all or partial return of premium if alive by end of term Renewable term - CORRECT ANSWERS guarantees the insured can renew insurance for the same term, but premium will go up with age Convertability - CORRECT ANSWERS allows conversion of term to permanent insurance

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Loans from cash value life insurance - CORRECT ANSWERS may borrow up to cash value and pay interest if policyowner dies with a loan, subtracted from death benefit Whole Life (Straight Life or Ordinary Life) - CORRECT ANSWERS whole life policy with level premium for duration of policy if premium payment stops, they receive the cash value of policy Limited Payment Whole Life - CORRECT ANSWERS whole life policy with premiums paid in shorter amount of time (10 pay, 20 pay, paid up at 65) Modified Premium Whole Life - CORRECT ANSWERS lower premium the first 3 to 5 years Graded Premium Whole Life - CORRECT ANSWERS premiums gradually increase for the first 5-10 years and then level off Indeterminate premium - CORRECT ANSWERS premiums can be adjusted by insurance company throughout the policy, but can't go over a max Interest Sensitive Whole Life - CORRECT ANSWERS cash value can increase beyond the stated guarantee part of each premium is invested by insurer Nonforfeiture options - CORRECT ANSWERS 1- cash surrender value 2- paid up insurance 3- extended term insurance Whole Life disadvantages - CORRECT ANSWERS premium not flexible, more expensive than term, no control of investments, death benefit can't be increased

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Universal Life A - CORRECT ANSWERS level death benefit more of each premium is applied towards cash value so it grows quicker Universal Life Insurance - CORRECT ANSWERS flexible premium policy with lifetime protection Universal Life B - CORRECT ANSWERS increasing death benefit equal to face amount + cash value Taxation on withdrawals from cash value life insurance - CORRECT ANSWERS withdrawals up to premiums paid (cost basis) are tax free withdrawals over premiums paid are taxed as ordinary income Variable Universal Life - CORRECT ANSWERS permanent insurance and cash value can be invested Separate account - CORRECT ANSWERS fund in which a life insurance company holds and invests variable annuity and life insurance premium maintained separately from general account, where company holds premium for fixed products Which variable policy has no guaranteed death benefit? - CORRECT ANSWERS variable universal life variable whole life does Joint Life Policy - CORRECT ANSWERS first to die

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pays death benefit when first insured dies costs less than 2 individual policies Survivorship Life Policy - CORRECT ANSWERS second to die can pay the estate costs of deceased also costs less than 2 individual policies Jumping Juvenile Policy - CORRECT ANSWERS death benefit of a juvenile policy increases at 18 or 21 Waiver of Premium rider - CORRECT ANSWERS premium is waived in the event of disability for flex premium policies, the cost of insurance deduction from cash value is waived instead of premium Disability Income Rider - CORRECT ANSWERS provides a monthly benefit check if insured becomes disabled. benefit usually 1% of face value during disability premiums are waived and DB is still paid out to benes Payor Benefit Rider - CORRECT ANSWERS usually associated with juvenile policies if the person paying premium becomes disabled or dies before the child is legally an adult, the premiums are waived until the child is 18 Accelerated Benefits Rider - CORRECT ANSWERS allows insured to apply for an advance of some or all of death benefit (25-100%)

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they must have a limited life expectancy or meet certain medical circumstances (chronic illness or catastrophe) Other Insured Rider - CORRECT ANSWERS provides convertible term for another person (spouse, children, business partner) Exchange Privilege Rider - CORRECT ANSWERS allows policyowner to switch the insured often used when a business owns insurance on a key employee who retires or leaves Term Insurance Rider - CORRECT ANSWERS added to a permanent policy to increase coverage for a lower cost than paying separate term policy premium Return of Premium Rider - CORRECT ANSWERS upon death, death benefit = permanent policy death benefit + premiums paid for rider Accidental Death Benefit Rider - CORRECT ANSWERS pays an extra benefit if the insured dies as a result and within 90 days of an accident often referred to as double or triple indemnity Guaranteed Insurability Rider - CORRECT ANSWERS rider that allows owner to purchase additional life insurance without proving insurability from ages 25-40 at 3 year intervals can advance to the next option date/interval with life events like marriage and birth/adoption Cost of Living Rider - CORRECT ANSWERS rider that increases the death benefit to keep up with inflation premium for additional coverage based on the insured's attained age 6 riders affecting amount of death benefit - CORRECT ANSWERS 1. Insured term rider

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2. Return of premium rider
3. Accidental death rider
4. Accidental death or dismemberment rider
5. Guaranteed insurability rider
6. Cost of living rider Long-Term Care Rider - CORRECT ANSWERS advance of death benefit while the insured is alive to use in the event of chronic illness reduces death benefit payable upon death Capital Sum vs. Principal Sum - CORRECT ANSWERS capital sum- amount of money paid by an accidental death & dismemberment rider if the insured is disabled in an accident principal sum- the amount of money paid by an accidental death benefit rider if the insured dies in an accident Life insurance settlement options - CORRECT ANSWERS -interest income only -fixed period -fixed amount -life income -life with period certain -life with refund certain -joint and survivor life Interest Income Only Settlement - CORRECT ANSWERS interest regularly paid to beneficiary and death benefit paid at a later date Fixed Period Settlement - CORRECT ANSWERS interest and death benefit paid over a set period of time

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Fixed Amount Settlement - CORRECT ANSWERS interest and death benefit paid in fixed amounts until money runs out what impacts time horizon? interest earnings and bene can adjust the fixed amount Life Income Settlement - CORRECT ANSWERS like an annuity, beneficiary is guaranteed a stream of income for life options- life only, life with period certain, life with refund, joint and survivor life Policy loans - CORRECT ANSWERS no credit check, lower interest rate and flexible repayment schedule. If insured dies with a loan it reduces the death benefit dollar for dollar Participating vs. nonparticipating policies - CORRECT ANSWERS participating- can pay dividends but not guaranteed nonparticipating- no dividends Life insurance dividend options - CORRECT ANSWERS CARPPO Cash, accumulation of interest, reduced premium, paid up additions, paid up interest, one- year term Policy provisions - CORRECT ANSWERS the terms of a life insurance policy- describe how common situations will be handled and the rights/obligations of the insured and insurer Life insurance ownership rights - CORRECT ANSWERS -name and change bene -select settlement options -borrow or withdraw cash value -receive dividends -surrender or cancel policy -assign or transfer ownership

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-select and change premium payment method -select a nonforfeiture option Provisions - Free Look - CORRECT ANSWERS policy owner can return the policy within 10 days of delivery and receive all premium paid Provisions - Insuring Clause - CORRECT ANSWERS states the insurer's promise to pay upon the insured's death and how much usually found on the 1st page of the policy and signed by an officer of the insurance company Provisions - Assignment (2 types) - CORRECT ANSWERS collateral assignment- temporary pledging of death benefit as collateral for a loan. does not change ownership absolute/permanent assignment- permanent change of ownership Provisions - Entire Contract - CORRECT ANSWERS the policy and a copy of the original application are the entire contract insurer may not refer to any other documents when paying or denying a claim Provisions - Endorsements - CORRECT ANSWERS any modifications to the policy must be made in writing, agreed to by insurer and insured, and signed by an officer at the insurance company Provisions - Consideration - CORRECT ANSWERS legal term meaning something of value ($) insured's consideration- premium payments insurer's consideration- payment of benefits at time of claim

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Provisions - Premium Payments - CORRECT ANSWERS premiums are due in advance of the coverage period grace period is 31 days and if the insured dies within the 31 days, the insurer will pay death benefit minus premiums missed Provisions - Reinstatement - CORRECT ANSWERS restoring a lapsed policy almost always allowed for permanent policies if the insured submits an application for reinstatement within 3 years, pays all missed premiums plus interest, and does another medical exam Provisions - Incontestability - CORRECT ANSWERS after 2 years the policy can't be taken away, even if material misrepresentation or fraud are found first 2 years of a policy are the contestable period and the insured may be required to substantiate statements made in app Provisions - Suicide - CORRECT ANSWERS if the insured commits suicide within 2 years, the insurer will only return premiums paid and not pay the death benefit after 2 years the full death benefit would be paid Provisions - Misstatement of Age and Gender - CORRECT ANSWERS death benefit is reduced to an amount that premium paid would have purchased at the correct age or gender males pay higher premium than females incontestability clause does not apply to misstatement of age or gender Provisions - Payment of Claims - CORRECT ANSWERS insurer must promptly pay death benefit

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if not paid within 60 days interest must be paid Beneficiary - CORRECT ANSWERS the individual or entity entitled to receive death benefit. must have an insurable interest in the insured when the policy was purchased Per Capita vs. Per Stirpes - CORRECT ANSWERS Per capita (by the head)- death benefit is split amongst living beneficiaries. If 1 is deceased, the living bene(s) receive their share too. Per stirpes (by the branch)- if a beneficiary is deceased, their living heirs receive their portion of death benefit. Revocable vs. Irrevocable Beneficiary - CORRECT ANSWERS revocable- can be changed at any time without beneficiary consent irrevocable- can only be changed with beneficiary's written consent. if they die before the insured, the insured can then name a new bene. irrevocable benes also have to approve loans and withdrawal of cash value. Facility of Payment Provision - CORRECT ANSWERS insurer can pay someone other than the beneficiary Uniform Simultaneous Death Act - CORRECT ANSWERS if the insured and primary beneficiary die in the same accident, the primary bene is assumed to have died first and the policy proceeds are paid to the contingent bene (not the primary bene's estate) Common Disaster Provision - CORRECT ANSWERS expansion of Uniform Simultaneous Death Act if both the insured and primary beneficiary die within 30-90 days as a result of the same accident, the primary bene is assumed to have died first and proceeds are still paid to the contingent bene (not the primary bene's estate)

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Spendthrift Provision - CORRECT ANSWERS death benefit can't be paid in a lump sum, claimed by creditors, pledged by a bene to creditors, or used by the bene as loan collateral Exclusions - CORRECT ANSWERS coverage does not apply for: -suicide within 2 years -non-commercial aviation pilots and passengers -military (status-type and results-type) -hazardous hobby- might still get coverage but for a higher premium Status-Type vs. Results-Type Military Exclusion - CORRECT ANSWERS status-type- coverage is void for the entire duration of military service results-type- coverage is only void if death results from military Groups eligible for group insurance - CORRECT ANSWERS group must have been formed for a purpose other than insurance -employers -multiple employer trust (multiple smaller employers in similar industry) -labor unions -trade associations -group credit life Group Credit Life Insurance - CORRECT ANSWERS lender sponsors a group life insurance plan for its debtors insurance can't exceed the debt and the lender is bene Master Policy vs. Certificate of Insurance - CORRECT ANSWERS 1 master policy is issued to the sponsoring group (employer) and those covered under the plan receive a certificate of insurance

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Contributory vs. Noncontributory Employer Group Plan - CORRECT ANSWERS contributory- employee pays part of the premium and 75% of eligible employees must enroll for the employer to sponsor the plan noncontributory- employer pays whole premium and 100% of eligible employees must enroll Group underwriting - CORRECT ANSWERS underwriter underwrites the group, not the individuals no health exam Employee eligibility for group plans - CORRECT ANSWERS employers can't chose which individuals they will cover and not cover, but they can choose which classes of employees receive coverage common classes are full time vs. part time and years of service Probationary & enrollment periods - CORRECT ANSWERS probationary period is the period employees must wait before enrolling enrollment period typically 31 days after probationary Group coverage conversion privilege - CORRECT ANSWERS certificate holders (employees) must be allowed to convert their group coverage to an individual policy within 31 days of losing coverage and without providing proof of insurability must be a permanent policy for the same coverage amount Annuity accumulation vs. annuitization periods - CORRECT ANSWERS accumulation- additional premium payments can be made, accumulated value can be partially withdrawn or surrendered, interest grows tax deferred, annuity belongs to owner annuitization- accumulated value is converted to a regular stream of income and the annuity now belongs to the insurance company

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4 parties to an annuity contract - CORRECT ANSWERS 1. owner- power to change contract

2. annuitant- receives annuitization income, no power to change contract
3. beneficiary- receives DB
4. insurer Immediate annuity (SPIA) - CORRECT ANSWERS single premium immediate annuity income payments can start as early as 1 month after purchase and must be started within 1 year Deferred annuity - CORRECT ANSWERS income payments begin sometime in the future can purchase with a single premium (SPDA) or ongoing premium Annuity withdrawal taxation - CORRECT ANSWERS earnings taxed as ordinary income 10% penalty on withdrawals prior to 59 1/2 Annuitization options - CORRECT ANSWERS -life -life with refund -life with period certain -joint life and survivor- pays until 2nd dies -joint life- stops paying after 1st dies Factors affecting annuitization amount - CORRECT ANSWERS age, gender, length of payment guarantee, interest rate insurer has been earning on funds used to buy the annuity Fixed annuities - CORRECT ANSWERS downside protection, supported by insurer's general account, credited a stated rate of interest each year

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Variable annuities - CORRECT ANSWERS investment risk, supported by investment assets held in a separate account, value expressed in accumulation units, converted to annuity units upon annuitization Equity-indexed annuities - CORRECT ANSWERS fixed annuity with an interest rate linked to an equity index (S&P) offers downside protection with a minimum rate guarantee, usually 1-2% Group annuities - CORRECT ANSWERS funded by employer contributions and distributions determined by employer Life insurance taxation - CORRECT ANSWERS -premiums- not tax deductible -cash value- interest is tax deferred and only taxed if withdrawn -full surrender- only gain is taxable -partial surrender- only gain is taxable. FIFO so cost basis is withdrawn first -loans- reduce death benefit, not taxed when in force, only taxed if policy is surrendered with a gain -dividends- not taxed. considered return of premium so reduce cost basis -death benefit- not taxed. if paid over time, interest earned is taxed but never original death benefit -accelerated death benefit- not taxed Business life insurance taxation - CORRECT ANSWERS premiums are not tax deductible (except for executive bonus policies) and death benefit not taxable Group life insurance taxation - CORRECT ANSWERS premiums paid by employer are tax deductible as a business expense premiums for the first $50k of coverage not taxable income for employees. taxable over $50k

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Modified Endowment Contract (MEC) - CORRECT ANSWERS too much premium paid in the first 7 years of a policy (7 pay test). once a MEC always a MEC withdrawals and loans are taxed LIFO so interest withdrawn first. 10% penalty on interest if withdrawn before 59 1/2 (unless disabled) Annuity taxation - CORRECT ANSWERS -premiums- not tax deductible -interest during accumulation- tax deferred -withdrawals during accumulation- LIFO (same as MEC) -annuity payments- taxed per exclusion ratio -annuity payments past life expectancy- fully taxable -death benefit- lump sum, 5 year deferral, annuity payout, spousal continuation Exclusion ratio - CORRECT ANSWERS cost basis / value = % of payment attributed to cost basis and excluded from gross income paid in $650 / $1k value = 65% exclusion ratio. The additional 35% is ordinary income Annuity death benefit taxation - CORRECT ANSWERS -lump sum- gain is taxable -5 year deferral- interest in first out (LIFO) but no 10% penalty -annuity payout- taxed per exclusion ratio -spousal option 1035 contract exchange taxation - CORRECT ANSWERS section 1035 of tax code allows the exchanging of contracts without gain taxation life to life- not taxable annuity to annuity- not taxable life to annuity- not taxable *annuity to life- not eligible. gains are taxed

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Life insurance proceeds & gross estate - CORRECT ANSWERS included in deceased insured's estate if: -payable to insured's estate -insured owns policy at time of death -insured transferred ownership of policy within 3 years Annuity death benefit & gross estate - CORRECT ANSWERS if death occurs during accumulation, entire value of annuity included in estate if death occurs during annuitization, present value of future payments included in estate IRA contribution deductibility - CORRECT ANSWERS deductible when under certain AGI limits or when not covered by an employer plan Investments NOT allowed in IRAs - CORRECT ANSWERS life insurance, collectibles, hard assets (gold or silver) Penalty for missed RMD - CORRECT ANSWERS 25% on taxes owed Taxation of IRA withdrawals - CORRECT ANSWERS deductible contributions are fully taxed, nondeductible contributions are tax free IRA & gross estate - CORRECT ANSWERS entire value included in gross estate