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  4. Federal Tax Considerations

Free Federal Tax Considerations Practice Questions

Indiana Life exam — 20 practice questions.

Subtopics: Death benefit taxation, Cash value growth, Premium deductibility, 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 to a named beneficiary in a lump sum are generally:

Received income-tax-free

Lump-sum death proceeds are generally received free of federal income tax by the beneficiary.

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

Tax-deferred while it remains in the policy

Cash value grows tax-deferred; a gain is taxable only if the policy is surrendered for more than its cost basis.

3. Premiums an individual pays for personal life insurance are generally:

Not tax-deductible

Personal life insurance premiums are paid with after-tax dollars and are not deductible.

4. Policy dividends on a participating life policy are taxable only when:

Total dividends exceed the total premiums paid (cost basis)

Dividends are a nontaxable return of premium until they exceed the policyowner's 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 Pennsylvania Insurance Department and the exam administrator before relying on it.