LLQP (Life Licence Qualification Program) Practice Exam · Question
A policyowner surrenders a whole life policy with a Cash Surrender Value (CSV) of $50,000 and an Adjusted Cost Basis (ACB) of $20,000. How much of the surrender value is taxable?
The Adjusted Cost Basis (ACB) represents the non-taxable portion of a policy's cash value. When a policy is surrendered, the taxable amount is the Cash Surrende
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Question: A policyowner surrenders a whole life policy with a Cash Surrender Value (CSV) of $50,000 and an Adjusted Cost Basis (ACB) of $20,000. How much of the surrender value is taxable?
Answer options:
- $50,000 (The full CSV)
- $20,000 (The ACB amount) ✅ $30,000 (The CSV minus the ACB)
- $0 (Life insurance proceeds are always tax-free)
Correct answer: $30,000 (The CSV minus the ACB)
Explanation: The Adjusted Cost Basis (ACB) represents the non-taxable portion of a policy's cash value. When a policy is surrendered, the taxable amount is the Cash Surrender Value (CSV) minus the ACB. If CSV is $50,000 and ACB is $20,000, then $30,000 is taxable as income.
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- A life insurance policy that offers lifelong coverage, a guaranteed death benefit, and a savings component tha
- Group benefits in Canada commonly include:
- Sarah, a 35-year-old marketing professional in Ontario, purchases a participating whole life insurance policy
- Mark, a 45-year-old business owner in British Columbia, has a Universal Life policy with a Level Cost of Insur
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