All of the following statements about the taxation of insurance proceeds are correct EXCEPT?

All of the following statements about the taxation of insurance proceeds are correct EXCEPT?


A) Interest earned on policy dividends is exempt from income tax.

B) A policyowner who receives the cash value for a surrendered policy must pay taxes on any gain.

C) Generally, no gain or loss is recognized when one insurance policy is exchanged for another.

D) A beneficiary will not be taxed on insurance proceeds paid as a lump sum death benefit.



Answer: A) Interest earned on policy dividends is exempt from income tax.

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