Ralph owns a $50,000 nonpar whole life policy. Its cash value has accumulated to $15,000, and he has paid a total of $9,500 in premiums. If he surrenders the policy for its cash value, how will it be taxed?

Ralph owns a $50,000 nonpar whole life policy. Its cash value has accumulated to $15,000, and he has paid a total of $9,500 in premiums. If he surrenders the policy for its cash value, how will it be taxed?


A) Ralph will receive $5,500 tax free; the $9,500 balance is taxable as income.

B) Ralph will receive the $15,000 tax free.

C) Ralph will receive the $15,000 as taxable income.

D) Ralph will receive $9,500 tax free; the $5,500 balance is taxable as income.



Answer: D) Ralph will receive $9,500 tax free; the $5,500 balance is taxable as income.

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