Tax TreatmentQuestion 711 of 716
The cash value inside a permanent life insurance policy grows:
a.Taxable to the owner as ordinary income each year
b.Tax-free forever, even if the policy is later surrendered
c.As a long-term capital gain reported annually to the IRS
d.Tax-deferred while the policy remains in force
Explanation
Cash value accumulates tax-deferred as long as the policy stays in force; it is not taxed annually. Gains can become taxable if the policy is surrendered for more than its basis.
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PrepPass team · Verified against California Life & Health Insurance License Exam · How we review
Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)