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  4. Federal Tax Considerations

Free Federal Tax Considerations Practice Questions

Georgia Life exam — 25 practice questions.

Subtopics: Death benefit tax, MEC, 1035 exchange, Cash value growth, Premium deductibility, Death benefit taxation, Dividends taxation, Modified endowment contract, Traditional IRA, Roth IRA, Qualified plan contributions, Rollover vs transfer, 403b, Transfer-for-value rule, Estate inclusion incidents of ownership, Three-year rule, Section 79 group term, Key person policy taxation, Life policy withdrawal basis recovery, Required minimum distributions, SEP IRA, 1035 exchange life-to-life, 401k salary deferral

Read the Federal Tax Considerations study guide

Sample questions & answers

1. Life insurance death benefits paid in a lump sum to a named beneficiary are generally:

Received income-tax-free

Lump-sum death proceeds paid to a named beneficiary are generally received free of federal income tax.

2. A life policy that fails the seven-pay test is classified as a:

Modified endowment contract

A policy failing the seven-pay test becomes a modified endowment contract (MEC), changing the tax treatment of distributions.

3. The tax-free transfer of one life or annuity contract into another qualifying contract is a:

1035 exchange

Section 1035 allows certain like-kind life and annuity contract exchanges without immediate income tax.

4. The cash value growth inside a permanent life policy is generally:

Tax-deferred while it remains in the policy

Inside buildup of cash value grows tax-deferred and is generally not taxed unless withdrawn above the cost basis.

All Life topics

Practice: Federal Tax Considerations

Take a randomized, timed-style practice test. Answer choices are shuffled and your results are scored instantly with an explanation for every question.

Practice questions are study aids generated for exam preparation and are not actual exam questions. Content is provided for educational purposes and is not legal advice. Verify current statutes, rules, and exam specifications with the Insurance Department and the exam administrator before relying on it.