Practice Quiz

Health and Life Insurance

Category - Tax Issues

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Life insurance policy owners can make a full or partial withdrawal of their cash value. This cash value will only be taxable, however, when __________.
  1. It is worth more than what the policy owner has paid into the policy
  2. It is worth less than what the policy owner has paid into the policy
  3. It is not withdrawn
  4. It is taken out as a loan
Explanation
Answer: A - Life insurance policy owners can make a full or partial withdrawal of their cash value. This cash value will only be taxable, however, when it is worth more than what the policy owner has paid into the policy. If the policy owner withdraws less than what they have paid into the policy, then they will not be taxed on that withdrawal.
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