Which statement is true about the taxation of term life insurance?

Which statement is true about the taxation of term life insurance?

• A. Term policies accumulate cash value
• B. Term policies do not accumulate cash value
• C. Term policies are tax-deductible
• D. Term policies pay dividends and earn interest

Answer: (B)

Term life insurance is pure protection with no cash value component. Because there is no cash value being built inside a term policy, it does not accumulate cash value over time. That’s why the statement about cash value is true. In terms of taxes, personal term premiums aren’t tax-deductible, and term policies don’t pay dividends or earn interest. The death benefit is typically paid income‑tax‑free to beneficiaries, since there’s no cash value buildup to withdraw. So term policies do not accumulate cash value.

Term life insurance is pure protection with no cash value component. Because there is no cash value being built inside a term policy, it does not accumulate cash value over time. That’s why the statement about cash value is true. In terms of taxes, personal term premiums aren’t tax-deductible, and term policies don’t pay dividends or earn interest. The death benefit is typically paid income‑tax‑free to beneficiaries, since there’s no cash value buildup to withdraw. So term policies do not accumulate cash value.