Which of the following statements concerning the valuation of life insurance pol

Question

Which of the following statements concerning the valuation of life insurance policies for federal gift tax purposes is (are) correct?

          I       If the gift is a paid-up policy, the value of the gift is the replacement cost for a comparable policy with the same company.

          II      If the gift is a new policy purchased for another person, the value of the gift is the gross premium paid.

          III     If the gift is an existing policy for which future premiums are payable, the value of the gift is the policy’s interpolated terminal reserve plus the unearned portion of the paid premium.

A) I and II only

B) I only

C) I, II and III

Explanation / Answer

1) To calculate the charitable deduction of a policy donated to charity, the Tax Code says to use the lesser of fair market value (FMV) or the donor's cost basis.

The gift tax value of a life insurance policy is the replacement cost of the policy at the time of the gift

Generally, the replacement cost is established through the sale of the particular policy by the insurance company or through the sale by the insurance company of comparable policies.Because valuation of an insurance policy through sale of comparable policies is not possible when the gift is of an existing policy that has been in force for some time and on which further premium payments are to be made, the value of an existing policy is its interpolated terminal reserve at the date of the gift plus the unused portion of the last-paid premium. A policy’s interpolated terminal reserve value is available from the life insurance company by requesting

therfore answer is B) I only

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.