Tax Facts

24 / What is the tax treatment of life insurance dividends when endowment maturity values or cash surrender values are paid in installments or as life income?

In the case of life insurance cash surrender values and endowment maturity values, total excludable dividends paid or credited before the payments begin are subtracted from gross premiums to determine the net premium cost of the contract.1 It is this net premium cost that is used in computing the portion of the payment that may be excluded from gross income (the investment in the contract). The treatment of dividends that are used to purchase paid-up additions is discussed in Q 25.




1.     IRC § 72(c)(1).


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