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 these.

Question

Quizplus · Accepted Answer

The annual increase in the cash surrender value of a life insurance policy is not included in gross income because it is not considered income until the policy is surrendered. Therefore, it is not taxed and does not reduce the deduction for life insurance expense. However, any interest earned on the cash value may be taxable.

The Annual Increase in the Cash Surrender Value of a Life