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American College Exam HS330 Topic 1 Question 111 Discussion

Actual exam question for American College's HS330 exam
Question #: 111
Topic #: 1
[All HS330 Questions]

On January 1, 2004 a father gave his daughter a $200,000 straight (ordinary) life insurance policy on his life. Premiums are paid annually. The pertinent facts about the policy are:

Date of issue: July 1, 1992

Premium paid on July 1, 2003 $3200

Terminal reserve on July 1, 2003 20,000

Terminal reserve on July 1, 2004 24,000

What is the value of the policy for federal gift tax purposes?

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Suggested Answer: C

Contribute your Thoughts:

Mica
2 days ago
Wait, wait, wait... is this a trick question? What kind of insurance policy has a terminal reserve? I need a refresher on this before I can even attempt an answer.
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Carey
6 days ago
Hah, this question is a piece of cake! The answer is clearly C) $17,700. Anyone who doesn't get this is a real numbskull, am I right?
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Wava
7 days ago
I think the answer is B) $17,400. The terminal reserve on July 1, 2003 was $20,000, and the premium paid on July 1, 2003 was $3,200. So the value of the policy should be $20,000 + $3,200 = $17,400.
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Sabra
10 days ago
That's a good point, Florencia. The premium paid in 2003 should also be factored in when calculating the value of the policy.
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Florencia
11 days ago
I'm not sure, but I think we need to consider the premium paid in 2003 as well.
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Karl
12 days ago
I agree with Sabra, the terminal reserve increased by $4,000 from 2003 to 2004.
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Rolf
19 days ago
The correct answer is C) $17,700. The value of the policy is the terminal reserve on July 1, 2004, which is $24,000. Since the father paid a premium of $3,200 on July 1, 2003, the value of the policy for federal gift tax purposes is $24,000 - $3,200 = $17,700.
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Veda
8 days ago
I think the answer is C) $17,700.
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Sabra
27 days ago
I think the answer is C) $17,700.
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