Question

Boudreau, a resident of Louisiana, carries the minimum required PAP liability limit of 10/25/10. While on vacation in Massachusetts, Boudreau strikes a pedestrian with his car, resulting in medical costs for the victim of $45,000. Massachusetts law requires motorists to maintain liability limits of 20/40/15. Which of the following statements concerning this situation is correct?

                               

Boudreau's insurance company will only pay $10,000 towards the victim's medical costs.

                               

Boudreau is subject to arrest or citation for failing to maintain proper insurance under Massachusetts law.

                               

Boudreau may be personally liable for $25,000 of the medical expense costs.

                               

Boudreau's insurance company will pay $40,000 of the medial expense costs.

Scott purchased a life insurance policy to insure that his kids were taken care of in the event of his untimely death. Since they are now grown, he feels he no longer needs the life insurance. He would like to exchange it for an annuity that can provide him additional income for his golden years. Which of the following is correct?

                               

He can make the exchange, but it will be taxable to the extent of the cash value

                               

He can make the exchange, but it will be taxable to the extent of the cash value less the additional money he puts into the annuity.

He can make the exchange, which will not be taxable.

               

He can make the exchange, which will not be taxable, but his basis will not reflect any of the investment into the life insurance policy.

Answer 1

Solution

1: Option 3. Boudreau may be personally liable for $25,000 of the medical expense costs.

If you hold the minimum automobile insurance required in your state and are involved in an accident in another state that requires higher minimum coverages then, your policy (10/25/10) will automatically increase to meet that state's minimum coverage requirements (20/40/15). Hence, insurance company will only pay $20,000 and rest $25,000 will come out of Boudreau's pocket.

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2. Option 3. He can make the exchange, which will not be taxable.

Through what’s known as a 1035 exchange, you can convert your life insurance into an income annuity without paying taxes on your gains.