What is the main purpose of the 7 pay test quizlet?

What is the main purpose of the 7 pay test quizlet?

What is the main purpose of the Seven-pay Test? It is a test to determine a life insurance policy is funded properly and therefore qualifies for the favorable tax treatment that is provided to life insurance policies.

What is a 7 pay test?

The seven-pay test determines whether the total amount of premiums paid into a life insurance policy, within the first seven years, is more than what was required to have the policy considered paid up in seven years.

How does the 7 pay test work?

How does the 7-pay test work? The 7-pay premium limit is a level annual amount of money that can be put into a cash value life insurance policy during each of the first seven policy years (or the first seven years after a material change in the policy, e.g. an increase in the face amount).

What is the seven-pay test in a modified endowment contract?

A ”modified endowment” policy is a life insurance policy that has failed a “7-pay test.” The result is that all loans and cash withdrawals are taxed using the last-in first-out, or LIFO, accounting method. The 7-pay test must be passed every year.

What is the purpose of annuity riders quizlet?

What is the purpose of annuity riders? A The insured may purchase additional insurance up to the amount specified in the base policy.

What is the purpose of a fixed period settlement option?

The fixed period life settlement option distributes the death benefit plus any earned interest over a specific period of time. That monthly check functions as tax-free income and can help your beneficiary cover living expenses.

What test defines an MEC?

Key takeaways. A modified endowment contract (MEC) is a cash value life insurance policy that gets stripped of many tax benefits. The seven-pay test determines if the policy qualifies as an MEC. MECs ended a popular way to shelter money from taxes by borrowing from insurance policies whose cash value grew too quickly.

What is MEC limit?

This is called the 7-pay limit or MEC limit, and is based on rules established by the Internal Revenue Code, setting the maximum amount of premium that can be paid into the contract during the first seven years from the date of issue in order to avoid MEC status.

What does MEC mean in life insurance?

modified endowment contract
Key takeaways. A modified endowment contract (MEC) is a cash value life insurance policy that gets stripped of many tax benefits. The seven-pay test determines if the policy qualifies as an MEC. MECs ended a popular way to shelter money from taxes by borrowing from insurance policies whose cash value grew too quickly.

What is 7 pay MEC limit?

What is the purpose of annuity riders?

Riders are optional enhancements that are available on your annuity contract at an additional cost. They allow your financial professional to tailor your contract and help protect what’s most important to you.

Which of the following statements best describes the purpose of the annuity payout period?

Which of the following statements best describes an annuity payout period? It guarantees income will be paid for any period the owner wants.