Oklahoma Life Producer Practice Exam

What is the tax implication of premiums paid for Variable Whole Life insurance?

1. Tax-free savings

2. Not tax-deductible

3. Fully deductible

4. Partially deductible

The correct answer is: Not tax-deductible

Premiums paid for Variable Whole Life insurance are not tax-deductible. This means that when policyholders make premium payments, they do so using after-tax dollars, and no tax benefit is gained at the time of payment. This characteristic is typical of most life insurance premiums, as they are viewed as a personal expense. Therefore, individuals cannot claim these payments as deductions on their income tax returns. In addition to this, the tax treatment of the cash value accumulation within variable whole life insurance is also important to note. The growth of the cash value may be tax-deferred, which means that while the policyholder does not pay taxes on the growth year-by-year, taxes may be due when the cash is withdrawn or if the policy is surrendered. Understanding this helps policyholders and potential buyers recognize the financial implications of investing in Variable Whole Life insurance and how it fits into their overall financial planning.