Practice Quiz

Health and Life Insurance

Category - Tax Issues

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Loans that are taken from a modified endowment contract are considered to be __________ for tax purposes.
  1. Dividends
  2. Premium adjustments
  3. Paid up additions
  4. Distributions
Explanation
Answer: D - Loans from a modified endowment contract are considered to be distributions for tax purposes. Therefore, a loan from a modified endowment contract under which there is a gain in the policy contract will result in taxable income to the policy holder that is equal to the lesser of the loan and the amount of the gain.
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