Question

"If a taxable event occurs regarding the cash value of a permanent life insurance" policy, in virtually every case, the taxable amount is taxed as:__________.

Answer 1

ordinary income.

Step-by-step explanation:

Life insurance death proceeds are generally tax free, I guess once you die you stop paying taxes, but your beneficiaries will also not pay taxes in case of death.

But generally all other events that affect the cash value of a permanent life insurance are taxed as ordinary income. The policy cost basis is the total amount paid in premiums. E.g. if the policy is surrendered for its cash value, and that value exceeds the premiums paid, the excess is taxed as ordinary income.