New York State Life Insurance Exam Questions Practice Question
A whole life policy is replaced with an annuity without incurring a tax penalty. This is referred to as
Correct Answer: D
Rationale: A 1035 Exchange allows for the tax-free transfer of cash values from one insurance policy or annuity to another, enabling the replacement of a whole life policy with an annuity without incurring tax penalties.
Option A, a Cross-Purchase Plan, pertains to business buy-sell agreements and does not involve tax-free exchanges. Option B, an Endowment Contract, refers to a specific type of life insurance that pays out at a set time or upon death, not an exchange mechanism. Option C, a Transfer of Value, relates to transferring ownership of a policy, which may incur tax implications rather than facilitate a tax-free exchange.
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