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Mathematics with Business Applications6th EditionMcGraw-Hill Education 3,760 solutions Business Math17th EditionMary Hansen 3,709 solutions A cash value policy may experience increases in the cash value annually. Part is from the premium and part is from any interest or gains. The interest or gains are not taxable at the time they are credited to the policy. Any earnings in the cash value are allowed to grow on a tax-deferred basis until one of the following events occurs: If the policyowner does sell, surrender, or withdraw funds from the policy, the difference between what is received and what had been paid in is taxed as ordinary income. This is the Cost Recovery Rule. When withdrawing cash from a cash value life insurance policy, the amount of withdrawals up to the policy's cost basis will be tax free. This is referred to as First In, First Out, or FIFO. The cost basis is the amount of premiums paid into the policy less any dividends or withdrawals previously taken. Any withdrawals in excess of the cost basis will be taxed as ordinary income. Upon surrendering a cash value life insurance policy, any gains will be subject to federal, and possibly state, income tax. The gain on the surrender of a cash value policy is the difference between the gross cash value paid out, plus any loans outstanding, and the cost basis in the policy. If the policy matures, the cash value will be paid as a lump sum. As with other distributions made while the insured is alive, the sum in excess of the cost basis is taxable as ordinary income. Recommended textbook solutions
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Business Math17th EditionMary Hansen 3,709 solutions Mathematics with Business Applications6th EditionMcGraw-Hill Education 3,760 solutions When a life insurance policy is surrendered How does the cost?In the first few years of holding a whole life policy, you may not be able to cash it out at all. And if you do, you can be charged 10% or more of the cash value in fees. After ten or more years of holding the policy the surrender fees often go down to 1% or may not be charged at all.
What does it mean when a life insurance policy has been surrendered?Surrendering a life insurance policy means canceling the policy and receiving its surrender value, which is the cash value minus any surrender fees. If you go this route, the coverage ends. Your beneficiaries will not receive a death benefit when you die.
What happens when a policy is surrendered for its cash value quizlet?What happens when a policy is surrendered for its cash value? Coverage ends and the policy cannot be reinstated.
How are surrendered charges deducted in a life policy with a rear end loaded provision?How are surrender charges deducted in a life policy with a rear-end loaded provision? "Deducted when the policy is discontinued". In a policy with a rear-end loaded provision, surrender charges are deducted when the policy is discontinued.
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When a life insurance policy is surrendered How does the cost recovery rule apply quizlet?
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