LLQP (Life Licence Qualification Program) Practice Exam · Question
A policyowner has a universal life policy with an Adjusted Cost Basis (ACB) of zero. If the policyowner takes a policy loan of $5,000, what are the tax implications?
The adjusted cost basis (ACB) is reduced by the Net Cost of Pure Insurance (NCPI). If the ACB is zero and a policy loan is taken, the full amount of the loan is
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Question: A policyowner has a universal life policy with an Adjusted Cost Basis (ACB) of zero. If the policyowner takes a policy loan of $5,000, what are the tax implications?
Answer options:
- The loan is tax-free as it is considered a debt. ✅ The entire loan amount is taxable as income to the policyowner.
- Only the interest portion of the loan is taxable.
- The loan is only taxable if the policy is surrendered in the same year.
Correct answer: The entire loan amount is taxable as income to the policyowner.
Explanation: The adjusted cost basis (ACB) is reduced by the Net Cost of Pure Insurance (NCPI). If the ACB is zero and a policy loan is taken, the full amount of the loan is considered a policy gain and is taxable as income.
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- A life insurance policy that offers lifelong coverage, a guaranteed death benefit, and a savings component tha
- Group benefits in Canada commonly include:
- Sarah, a 35-year-old marketing professional in Ontario, purchases a participating whole life insurance policy
- Mark, a 45-year-old business owner in British Columbia, has a Universal Life policy with a Level Cost of Insur
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