Arkansas Life and Health Insurance Practice Exam

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Prepare for the Arkansas Life and Health Insurance Exam. Utilize flashcards and multiple-choice questions with hints and explanations for each question. Get thoroughly ready for your certification test!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

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The only way a death benefit can be 100% income tax-free is to be paid out:

As an installment payment
As an immediate annuity
In a lump sum
Over the insured's lifetime

The correct answer is: As an installment payment

The correct answer is A, as an installment payment, is the only way a death benefit can be 100% income tax-free. When a death benefit is paid out as an installment payment, the recipient receives regular payments over a specified period, and this helps ensure that the funds remain tax-free. In contrast, options B, C, and D do not guarantee 100% income tax-free status for the death benefit. An immediate annuity, lump sum, or payment over the insured's lifetime may involve tax implications or taxation of interest earned on the benefit, making them not fully tax-free options.