knowledge topics
Taxation of Insurance
KNOWLEDGE EXPECTED OF: CFP® Professionals Only
- Explain the tax impact to an individual associated with an insurance† policy.
- When premiums are paid for a policy by the insured
- When premiums are paid for a policy by the insured’s employer††
- When premiums are shared between an insured and their employer
- When benefits are received for a policy where an insured paid the premiums
- When benefits are received for a policy where an insured’s employer paid the premiums
- When benefits are received for a policy where an insured and their employer shared the premiums
- When a return of premium is received upon surrender or maturity of the policy or death of the insured
- Define terms associated with the taxation of a life insurance policy, such as:
- Face amount
- Exempt policy
- Non-exempt policy
- Net cost of pure insurance (NCPI)
- Adjusted cost basis (ACB)
- Accumulating amount (or fund)
- Fair market value (FMV)
- Cash surrender value (CSV)
- Maximum Tax Accumulation Reserve (MTAR)
- Identify events when a life insurance policy is deemed to have been disposed, such as:
- The death of a life insured under a non-exempt policy
- Transfer of the policy ownership
- Surrender of a portion or the entire policy
- A policy loan (after March 31, 1978)
- Maturity of the policy during the insured’s lifetime
- Identify the transfers of a life insurance policy that may be made on a tax-deferred basis.
- To children or grandchildren where the child or grandchild is the life insured
- To a spouse
- Identify that there may be a tax impact on the disposition of a life insurance policy.
† Including major types of insurance such as life, disability, critical illness and long-term care.
†† Employer includes both the insured’s employer and the employer of the insured’s spouse.
Glossary of Verbs (mouse over to see definition)
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Define
To state exactly the meaning of
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Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
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Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
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Compare
To note the similarities and differences between two or more things
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Estimate
To determine an approximate value for
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Calculate
To find the value using mathematics
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Convert
To change from one form or purpose to another
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Evaluate
To reach a conclusion or make a judgement through careful study
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Interpret
To give the meaning of / to construe or understand / to translate orally
Read more about the Taxonomy used in the FP-BoK