Life Insurance Policy Provisions, Options, and Riders
Why is a dividend on a participating life policy generally not taxable to the owner?
Answer and explanation
Answer: D. A policy dividend is a refund of an overpayment of premium, so it is not income, though it reduces the owner's cost basis and interest credited on dividends left with the insurer is taxable. The source of the funds, the gift rules and the type of policy are not the reason.Source: PSI — New York DFS Insurance Candidate Information Bulletin — Outline, dividends and taxation
More life insurance policy provisions, options, and riders questions
- What follows from naming the insured's estate, rather than a person, as the beneficiary of the policy?
- What happens to a spouse or other-insured term rider if the base insured dies first?
- What happens to dividends left with the insurer under the accumulation at interest option?
- What is fixed and what varies under the fixed-amount settlement option?
- What is fixed and what varies under the fixed-period settlement option?
- What is the function of a payor benefit rider attached to a juvenile life insurance policy?
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