Washington Life Producer Practice Exam 2025 - Free Life Producer License Practice Questions and Study Guide

The Exclusion Ratio in annuity payments is best described as the percentage of each payment that is taxable. This ratio is critical for understanding how much of the annuity payment is considered a return on investment versus how much is treated as taxable income. When an individual makes a premium payment for an annuity, a portion of the payments received during the payout phase constitutes a recovery of the principal, which is not subject to tax. The Exclusion Ratio helps in calculating this tax-exempt portion by determining what percentage of the total annuity payments can be excluded from taxable income. Therefore, this option accurately captures the essence of the Exclusion Ratio in the context of taxation on annuity payments.