With regard to the taxation of life insurance policies, which of the following statements is CORRECT?

With regard to the taxation of life insurance policies, which of the following statements is CORRECT?


A) As long as a whole life policy is not surrendered, the cash value accumulates tax free.

B) The premiums that Acme Manufacturing pays for its business life insurance policies (key purpose insurance, entity cross-purchase plans) are tax deductible.

C) Amy owns a participating life insurance policy on her own life. She can deduct the premium payments, but she will be taxed on any dividends the policy may pay.

D) Terry owns a 10-year-old whole life insurance policy which she surrenders for cash. She will be taxed on the full amount she receives, since the policy did not mature.



Answer: A) As long as a whole life policy is not surrendered, the cash value accumulates tax free.

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