Which of the following Dividend options results in taxable income to the policyowner?

Which of the following Dividend options results in taxable income to the policyowner?

A. Paid-up Additions

B. Cash

C. Accumulation at Interest

D. Reduced Premium

Ans. B. Cash

Trending, the case of a policyholder when life insurance policy distributes the dividend-based cash as taxable income to the policy owner. Dividends mean, an insurer pays back a percentage of the premium in the return on investment, death claims realized, and expense ratio turned out good. Some dividend alternatives like paid-up additions or accumulation at interest will not treat dividends as income and may potentially become tax deferred, but turning dividend into cash results in a taxable situation. The monetary value of the dividend is classified as an income in the ordinary type and must be reported on the policyholder’s tax returns for that particular year when it was received.