What additional information about Tanja’s UL policy does Ljubomir need to collect?

Goran and Tanja married two years ago. Last year, they purchased and moved into a three-bedroom house in the suburbs. The current balance on their mortgage is $655,000. They meet with Ljubomir, an insurance agent, to purchase a joint term life insurance policy to cover the mortgage. When Ljubomir asks about their existing coverage, Goran shares that he has none. Tanja explains that she owns a universal life (UL) policy with a level death benefit of $50,000 and a cash surrender value (CSV) of $5,000, purchased 6 years ago from another agent. Tanja would like to surrender her UL policy and use the $5,000 CSV to pay for a trip to Europe.

What additional information about Tanja’s UL policy does Ljubomir need to collect?
A . The investment vehicle of the policy’s CSV.
B . The adjusted cost basis (ACB) and surrender charges of the policy’s CSV.
C . The dividends and paid-up additions.
D . The premiums upon renewal.

View Answer

Answer: B

Explanation:

When considering surrendering a universal life (UL) policy, it is essential to understand the tax implications and any costs associated with surrender. The adjusted cost basis (ACB) helps determine the taxable portion of the policy’s cash surrender value (CSV) because any amount received above the ACB may be subject to tax. Additionally, surrender charges could reduce the CSV received upon surrender. Therefore, Ljubomir needs to collect both the ACB and any surrender charges applicable to Tanja’s policy. These factors will help Tanja make an informed decision regarding the net amount she would receive from surrendering the policy and the potential tax liability.