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  4. Federal Tax Considerations

Free Federal Tax Considerations Practice Questions

Michigan Life exam — 25 practice questions.

Subtopics: Death benefit taxation, Cash value growth, MEC, Policy loans, Annuity payout taxation, 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 proceeds paid to a named beneficiary are generally:

Received income-tax-free

Death benefits paid to a beneficiary are generally received free of federal income tax.

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

Tax-deferred while the policy is in force

Cash value generally grows tax-deferred while the policy remains in force.

3. A life policy that fails the federal 7-pay test is classified as a:

Modified endowment contract

A policy that violates the 7-pay test becomes a Modified Endowment Contract with less favorable distribution tax treatment.

4. A loan taken against the cash value of a life policy that remains in force is generally:

Not treated as taxable income

Policy loans are generally not taxable as long as the policy stays in force.

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.