Question 2020 of 287 · Texas Life, Accident and Health Agent Exam
Dividends on a participating whole life policy are generally treated for tax purposes as
Exactly one answer is correct.
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Correct answer to question 2020
- B: a return of premium, not taxable until they exceed total premiums paid
Explanation
Because dividends represent an overcharge of premium, they are not taxed until they exceed the policy's cost basis. Interest earned on dividends left on deposit is taxable.
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