Final answer:
Cash values in a business life insurance policy grow tax-deferred, meaning taxes on gains are only due upon withdrawal. These withdrawals are often tax-free up to the amount of premiums paid, but surrendering the policy can result in taxable gains. Option c is the answer.
Step-by-step explanation:
The correct answer regarding the taxation of cash values in a business life insurance policy is that cash values grow tax deferred. This means that the cash value portion of the policy can accumulate over time, and taxes on gains are not due until the policyholder withdraws money from the policy's cash value. It's important to know that withdrawals from the cash value are typically tax-free up to the amount of premiums paid into the policy. However, if the policy is surrendered, the gains above the premiums paid are subject to income taxation.