If a life insurance policy violates the __________ rule, the proceeds that are received by the beneficiary, with limited exception, will be taxable as ordinary income.

Question

Quizplus · Accepted Answer

If a life insurance policy violates the transfer for value rule, the proceeds that are received by the beneficiary, with limited exception, will be taxable as ordinary income. A transfer for value is considered as having occurred when a life insurance policy is either transferred or sold to another individual or entity for any amount of valuable consideration. This is vastly different from a 1035 exchange whereby one policy is exchanged for another.

If a Life Insurance Policy Violates the __________ Rule, the Proceeds