Illinois Life & Health Insurance Exam

Tax treatment of life insurance premiums and benefits {Ans: some life insurance policies pay dividends. a life insurance policy that pays dividends is referred to as a participating policy, there is no tax on dividends paid to the policy owner on participating policies (tax-free).}Cost Basis {Ans: on a cash value life insurance policy, cost basis is the total premiums that have been paid}Law of large numbers {Ans: says that the more people that an insurance company insures, the more accurate the actuarial tables will become and the losses will become more predictable and manageable}Disclosures that a producer must make to applicant at time of sale {Ans: -medical information is confidential -notice as to whom the medical information may be disclosed, right to refuse dissemination of medical records -privacy rights}Final expenses can be paid at an individual's death in 4 ways {Ans: -in cash out of the decease's personal savings -borrowing -by liquidating property, investments, business -life insurance benefits (timely, immediate estate, discounted dollars, avoid probate, tax advantages)}Tax treatment of life insurance premiums and benefits {Ans: Premiums paid on individual life insurance policies usually cannot be tax deducted (nonqulaified) there is usually no tax on