The Annual Increase in the Cash Surrender Value of a Life

question 125

Multiple Choice

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

• A)Is taxed according to the original issue discount rules.
• B)Is not included in gross income because the policy must be surrendered to receive the cash surrender value.
• C)Reduces the deduction for life insurance expense.
• D)Is exempt because it is life insurance proceeds.
• E)None of the above.

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Definitions:

Ordinary Perpetuity

A series of equal cash flows that occur at the end of each period forever.

Ordinary Annuity

A series of equal payments made at the end of consecutive periods over a fixed length of time.

Compounded Quarterly

When an investment's interest is compounded quarterly, the interest is calculated and added to the principal four times a year.

Perpetuity

A financial instrument that provides a stream of infinite cash flows or payments.