Practice Quiz

Health and Life Insurance

Category - Tax Issues

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Withdrawal of a life insurance policy's cash value is typically only taxable 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 worth less than the policy's death benefit
  4. None of the above
Explanation
Answer: A - Withdrawal of a life insurance policy's cash value is typically only taxable when it is worth more than what the policy owner has paid into the policy. For example, if the policy owner paid a total of $20,000 in premiums and they have $23,000 in cash value, they will be taxed on $3,000 if they decide to withdraw the entire $23,000 cash value amount.
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