Group Life & AnnuitiesQuestion 695 of 716
Once an annuitant has lived long enough to recover the entire cost basis through the exclusion ratio, subsequent payments are:
a.Taxed as a long-term capital gain
b.Entirely tax-free as recovered basis
c.Refunded to the annuitant as overpaid
d.Fully taxable as ordinary income
Explanation
After the basis is fully recovered, there is nothing left to exclude, so all further payments are fully taxable as ordinary income. The payments are not tax-free, capital gains, or refunded.
This topic, taught in full in the California Life & Health Insurance Producer Exam guide. California Life & Health Insurance Producer Exam — Complete Study Guide (2026) — PDF + EPUB, $19.99 · 14-day refund →
Practice all 716 questions free — no signup required.
Own the complete California Life & Health Insurance Producer Exam guide — PDF + EPUB, $19.99 →
Related questions on this topic
- The 'actively-at-work' provision in group insurance requires that, for coverage to take effect, the employee must:
- Group short-term disability (STD) differs from long-term disability (LTD) mainly in that STD:
- The exclusion ratio for an annuity payout is calculated as the:
- A surrender charge on a deferred annuity:
- Many deferred annuities include a free withdrawal provision allowing the owner to withdraw, without a surrender charge, up to:
- A withdrawal of taxable gain from a nonqualified annuity before age 59 1/2 is generally subject to:
Last reviewed: · editorial process
PrepPass team · Verified against California Life & Health Insurance License Exam · How we review
Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)