Pennsylvania Life and Health Insurance Exam Practice Question
Dividends are NOT subject to taxation because they are
Correct Answer: A
Rationale: Dividends are often viewed as a return of premium, reflecting an insurer's excess earnings distributed to policyholders. This classification indicates that they are not taxable, as they are essentially a refund of amounts previously paid.
Option B incorrectly suggests that dividends reduce the cash value of death benefits, which is not their purpose. Option C mischaracterizes dividends as guaranteed benefits, while they are contingent on the insurer's performance. Option D mistakenly treats dividends as prepaid equity; however, they represent a return rather than an advance on policy value.
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