The annual increase in the cash surrender value of a life insurance policy:
A)Is taxed according to the original issue discount rules.
B)Is not included in gross income because the policy must be surrendered to receive the cash surrender value.
C)Reduces the deduction for life insurance expense.
D)Is exempt because it is life insurance proceeds.
E)None of the above.

Question

Quizplus · Accepted Answer

The annual increase in cash surrender value of a life insurance policy is not included in gross income because it is considered a return of premiums paid. However, if the policy is surrendered for the cash value, any amount received that exceeds the premiums paid would be taxable as ordinary income.

The Annual Increase in the Cash Surrender Value of a Life