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 these.

Question

Quizplus · Accepted Answer

The annual increase in 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. Essentially, the policyholder cannot access the cash value without surrendering the policy or borrowing against it. Therefore, the increase in cash surrender value is not considered taxable income.

The Annual Increase in the Cash Surrender Value of a Life