Insurance Licensing OH-Life-Agent-Series-11-44 - OHIO Life Insurance Agent Series 11-44

Life insurance provides aguaranteed death benefit, which is aspecified sum of moneypaid to the named beneficiary upon the death of the insured.

"The primary function of life insurance is to provide a guaranteed amount of money to the beneficiary upon the death of the insured."

Paid-up additions (PUAs) are a dividend option in whole life insurance policies that allow policyholders to use dividends to purchase additional amounts of paid-up life insurance. These additions increase both the policy's cash value and death benefit. Each paid-up addition is a miniature whole life policy that requires no further premiums and participates in future dividends. This compounding effect can significantly enhance the policy's value over time. Therefore, the correct answer is C.

Only anofficer of the insurance companyis legally authorized tomake changesto a life insurance policy. Agents do not have the authority to alter contract terms.

"Only an officer of the insurance company has the authority to modify a policy’s provisions. Changes made by agents are not valid unless authorized in writing by the insurer."

Whole life insurance policies provide a death benefit that is generally income tax-free to the beneficiary. This tax advantage is one of the key benefits of life insurance. In contrast, distributions from annuities and qualified retirement plans may be subject to income tax.

According to the Ohio Life Insurance Study Guide:

"Life insurance death benefits are typically received income tax-free by the beneficiary, providing financial protection without tax liability."

A Modified Endowment Contract (MEC) is a life insurance policy that has exceeded the premium limits set by the Internal Revenue Code, specifically under the "seven-pay test." When a policy becomes a MEC, it is often because it has been funded with higher premiums in a shorter period, transforming it into an investment vehicle rather than a traditional life insurance policy.

The tax treatment of MECs differs notably from standard life insurance policies. While the death benefit remains income tax-free to beneficiaries, any distributions (including loans and withdrawals) taken before the insured's death are taxed on a last-in, first-out (LIFO) basis. This means that earnings are considered withdrawn first and are subject to income tax. Additionally, if the policyowner is under age 59½, a 10% penalty may apply to the taxable portion of the distribution.

This tax treatment aligns more closely with that of investment products, hence the characterization of MECs as investment vehicles.

Life insurance policies often include exclusions for certain high-risk activities or circumstances, such as death resulting from war, acts of war, suicide (typically within a specified period after policy issuance), or while operating an aircraft as a pilot. However, being a fare-paying passenger on a commercial transportation vehicle is generally not excluded. In fact, some policies provide additional benefits for deaths occurring under such circumstances.