Practice Quiz

Health and Life Insurance

Category - Tax Issues

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Life insurance policy withdrawals and loans are not considered to be taxable income, unless the policy has been lapsed or surrendered with an unpaid loan. In this case, the unpaid portion of the loan must be reported by the policy holder as taxable income. The amount that is reportable as income is known as __________.
  1. Phantom income
  2. Loan income
  3. Dividend income
  4. Interest income
Explanation
Answer: A - Life insurance policy withdrawals and loans are not considered to be taxable income, unless the policy has been lapsed or surrendered with an unpaid loan. In this case, the unpaid portion of the loan must be reported by the policy holder as taxable income. The amount that is reportable as income is known as phantom income.
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