Taxation of Life Insurance & Annuities

Question 1

For tax purposes, which of the following are considered to be a return of a portion of the premium paid for the policy?

• dividends
• Death Benefits
• Cash Value
• Policy Loan

Answer 1

• Dividends

Question 2

All of the following statements regarding tax treatment of individual life insurance policies are correct EXCEPT

• premiums are tax-deductible
• when a life insurance policy is surrendered for its cash value, only the gain is taxable
• cash value is not taxable as long as its stays in the policy
• policy loans are not taxable

Answer 2

• premiums are tax-deductible

Question 3

All of the following statements regarding taxation of annuities are correct except
* gain in an annuity or life insurance contract is taxable when a policy is surrendered
* annuity premiums are not tax-deductible unless the annuity is held in a qualified retirement plan
* if death occurs during the accumulation period, proceeds paid in a lump sum to the beneficiary are never taxable
* interest-earning credited to annuities
are not taxable as long as they stay in the policy

Answer 3

• if death occurs during the accumulation period, proceeds paid in a lump sum to the beneficiary are never taxable