Student Question from Margie L
Course: Insurance Planning
Insurance policy dividends may be taxable if they are paid in cash to the policy owner, but what about dividends that remain in the policy to purchase additional coverage (Paid-Up Additions)? Are those dividends non-taxable as long as the coverage is not lapsed or surrendered?
Great question! So, regardless of whether you take the cash, keep them on deposit with the insurer, or use them to purchase paid-up additions, ALL dividend payments are considered a return of premium. As such, they won’t be taxed unless they exceed premium payments. But again, whether the dividend payment is taken in cash or used to buy paid-up additions, there is no difference in regards to tax treatment.
Let me know if you have any other questions here!