How is the 'Adjusted Cost Basis' (ACB) of a life insurance policy typically calculated?

Question: How is the 'Adjusted Cost Basis' (ACB) of a life insurance policy typically calculated?

Answer options:

• The total amount of all premiums paid since the policy's inception. ✅ Total premiums paid minus the cumulative Net Cost of Pure Insurance (NCPI).
• The current Cash Surrender Value minus the surrender charges.
• The Face Amount of the policy minus the policy loans.

Correct answer: Total premiums paid minus the cumulative Net Cost of Pure Insurance (NCPI).

Explanation: The ACB is the cost basis of the policy for tax purposes. It is generally calculated as the sum of premiums paid minus the Net Cost of Pure Insurance (NCPI). It represents the 'untaxed' portion of the policy's value. Dividends taken as cash or used to reduce premiums also decrease the ACB.