The Annual Increase in the Cash Surrender Value of a Life

question 41

Multiple Choice

The annual increase in the cash surrender value of a life insurance policy:

• A)Is taxed when the individual dies and the heirs collect the insurance proceeds.
• B)Must be included in gross income each year under the original issue discount rules.
• C)Reduces the deduction for life insurance expense.
• D)Is not included in gross income each year because of the substantial restrictions on gaining access to the policy's value.
• E)None of these.

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Definitions:

Deposit Today

The act of placing money into a financial account or investment vehicle with the expectation of future returns.

Earn

To earn is to receive money or its equivalent in return for labor, services, or investments made.

Present Value

A calculation that determines the current worth of a future sum of money or stream of cash flows, given a specific rate of return.

Annuity

A fiscal product offering a consistent payout pattern, mainly aimed at supplying funds for individuals in retirement.