Life · Chapter 6 · Taxation
Taxation of Cash Value & Surrender (Cost Basis)
Definition
Cash value interest grows tax-deferred. Cost basis = total premiums paid − dividends received. On surrender (cost recovery rule): the amount above the cost basis is taxed as ordinary income; left in the policy, it's never taxed.
Easy to confuse with
These are what this term gets tested against — if you can't tell them apart cold, drill the contrast.
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