The annual increase in the cash surrender value of a life insurance policy:
A)Is taxed when the individual dies and the heirs collect the insurance proceeds.
B)Must be included in gross income each year under the original issue discount rules.
C)Reduces the deduction for life insurance expense.
D)Is not included in gross income each year because of the substantial restrictions on gaining access to the policy's value.
E)None of the above.

Question

Quizplus · Accepted Answer

The cash surrender value of a life insurance policy is not included in gross income each year because of the substantial restrictions on gaining access to the policy's value. This means that the increase in cash surrender value is not taxed annually. However, if the individual dies and the heirs collect the insurance proceeds, there may be taxes imposed on the distribution of the policy's value.

The Annual Increase in the Cash Surrender Value of a Life