Life Policy ProvisionsQuestion 164 of 315
Policy dividends paid on participating life insurance policies are generally treated for federal income-tax purposes as which of the following?
a.Ordinary taxable income each year
b.Capital gains
c.Taxable wages
d.A non-taxable return of premium, until cumulative dividends exceed the premiums paid
Explanation
Dividends on participating life policies are considered a return of unused premium and are generally not taxable. They become taxable only to the extent cumulative dividends received exceed total premiums paid into the policy, or when held at interest (the interest itself is taxable).
Law Reference: Cal. Ins. Code §10110Practice all 315 questions free — no signup required.
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