Under the 'accumulation at interest' dividend option, the interest credited on the accumulated dividends is:
Explanation
While policy dividends themselves are generally treated as a nontaxable return of premium, the interest earned when dividends are left to accumulate at interest is taxable income to the policyowner in the year it is credited. It is not exempt from reporting, is not always tax-free, and is not refunded to the insurer. This is a common exam point: the dividend is not taxed, but the interest it earns is.
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Related questions on this topic
- Under the 'reduced paid-up' nonforfeiture option, the policyowner uses the cash value to obtain:
- Under the 'extended term' nonforfeiture option, the policy's cash value is used to purchase:
- The dividend option that applies dividends to buy small amounts of additional permanent, paid-up coverage is called:
- Under the 'interest only' settlement option, the insurer:
- The settlement option that pays equal installments for a chosen length of time until the proceeds and interest are used up is the:
- Under the fixed amount settlement option, the beneficiary receives:
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