Question

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 these.

Answer 1

Answer:

(B) Is not included in gross income because the policy must be surrendered to receive the cash surrender value.

Explanation:

"Cash surrender value is the accumulated portion of a permanent life insurance policy's cash value that is available to the policyholder upon surrender of the policy.

The cash surrender value of an annuity is equal to the total contributions and accumulated earnings, minus prior withdrawals and outstanding loans."

Reference: Barone, Adam. “Defining Cash Surrender Value.” Investopedia, Investopedia, 22 Aug. 2019