New York State Life Insurance Exam Questions Practice Question
Generally, what are the tax implications of life insurance proceeds to the beneficiary?
Correct Answer: D
Rationale: Life insurance proceeds are typically received by beneficiaries tax-free at the time of the insured's death, allowing them to utilize the funds without tax burdens.
Option A is incorrect as life insurance proceeds are not considered earned income and thus are not subject to income tax. Option B mischaracterizes the nature of these proceeds; they are not classified as unearned income for tax purposes. Option C is also incorrect; while the proceeds may be subject to estate taxes if the estate exceeds certain thresholds, they are not taxed as part of the estate at the time of the insured's death.
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