Question

What is the tax significance of the face amount of a life insurance​ policy?

A.

The face amount of life insurance is excluded from the gross income of a beneficiary if the amount is paid upon the death of the insured and the beneficiary is any corporation.

B.

The face amount of life insurance is included in the gross income of a beneficiary if the amount is paid prior to death of the insured. If the amount paid exceeds the face of the policy then the excess is taxable.

C.

The face amount of life insurance is excluded from the gross income of a beneficiary if the amount is paid upon the death of the insured. If the amount paid exceeds the face of the policy then the excess is taxable.

D.

The face amount of life insurance is included in the gross income of a beneficiary if the amount is paid upon the death of the insured. If the amount paid exceeds the face of the policy then the excess is not taxable.

Answer 1

Correct answer is option C : The face amount of life insurance is excluded from the gross income of a beneficiary if the amount is paid upon the death of the insured. If the amount paid exceeds the face of the policy then the excess is taxable.

Explanation : Face value of life insurance is not taxble if amount is paid upon the death. However, if any amount paid in exceed of the face value of policy like interest etc.. then excess amount will be taxable.