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The cost basis of a life insurance policy is __________. a. Dividends left on deposit at interest plus the policy's cash values b. Cash values in excess of premiums paid c. Cash values plus any outstanding policy loans d. Premiums paid less dividends or withdrawals

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Answer:

The correct answer is letter "B": Cash values in excess of premiums paid.

Explanation:

The cost basis of life insurance is the total amount of premiums paid since the beginning of the contract of the insurance minus all the charges assessed since the very same beginning date. When the cash value is higher than the amount of the premiums paid, that amount becomes a taxable gain.

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