In surrendering a life insurance contract for its cash value, the total of premiums paid less the total of any dividends received in cash or used to offset premiums is:
Comprehensive and Detailed Step by Step Explanation:
Thecost basisis the total of all premiums paid minus dividends received or used to offset premiums. This figure is used to calculate the taxable portion of the cash value upon surrender.
Cost basis (D):Represents the non-taxable portion of the surrender value; any amount exceeding this is considered taxable income.
Cash value (A):The policy’s accumulated value, which may include taxable gains.
Loan value (B):Refers to the amount available for borrowing against the policy.
Gross proceeds (C):The full amount received upon surrender, not accounting for cost basis deductions.
[References:IRS Guidance on Life Insurance Taxation, Maryland Life Insurance Surrender Rules, and COMAR 31.09.14., ]
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