Florida Life and Health Insurance License Practice Test

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Which of the following Dividend options results in taxable income to the policyowner?

  1. Paid-up additions

  2. One-year term option

  3. Accumulation at interest

  4. Cash option

The correct answer is: Accumulation at interest

Accumulation at interest refers to a dividend option where the insurance company invests the dividends into a separate account, earning interest. This results in taxable income for the policyowner since the dividends are considered to be earnings and not a return of premiums. The other options are not taxable because Paid-up additions increase the death benefit and are considered a return of premiums, not income. One-year term option provides a one-year term insurance coverage and does not generate any income. Cash option simply pays out the dividends in cash and does not generate any additional income.

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