Practice Quiz

Health and Life Insurance

Category - Tax Issues

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When can dividends that are received by a life insurance policy holder be taxed?
  1. When the dividend amount that is received exceeds the amount that the policy holder has paid in as premiums
  2. When they are received via a term life insurance policy
  3. When the death benefit is paid out to the beneficiary
  4. All of the above
Explanation
Answer: A - Dividends that are received by a life insurance policy holder can be taxed to the policy holder when the amount of dividends that are received exceeds the amount that the policy holder has paid in as premiums to the policy. Term life insurance policies do not pay dividends. Death benefits that are received by beneficiaries are also not subject to income tax.
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