Exam NY-Life-Accident-and-Health Topic 1 Question 37 Discussion

Actual exam question for Insurance Licensing's NY-Life-Accident-and-Health exam
Question #: 37
Topic #: 1

An insured owns a whole life policy that has accumulated cash value. Which of the following statements is true about the policy ' s cash value?

A. The policy ' s cash value is viewed as investment growth and therefore subject to taxation for each calendar year. B. The growth of the policy ' s cash value is not subject to income tax while the policy is in force. C. It is subject to fluctuations of the company ' s overall performance. D. The cash value is not guaranteed.

Suggested Answer: B Vote an answer

The correct answer is B. The growth of the policy's cash value is not subject to income tax while the policy is in force. Whole life insurance is a form of cash value life insurance . As premiums are paid, part of the premium funds the death benefit and expenses, while part builds cash value inside the policy. Under standard life insurance taxation principles, that internal cash value buildup generally grows on a tax-deferred basis , meaning it is not taxed annually while it remains within the policy. The NAIC explains that whole life policies build cash value over time and that this value grows without being taxed currently, and IRS guidance similarly distinguishes taxable situations from ordinary in-force policy growth.
The other choices are incorrect. A is wrong because whole life cash value is not normally taxed each calendar year. C is more characteristic of variable life , where values fluctuate with investment performance. D is incorrect because traditional whole life generally provides guaranteed minimum cash values under the contract, subject to policy terms and continued premium payment; New York DFS whole life product guidance reflects that whole life operates on a guaranteed basis and includes cash surrender value provisions.

by Andrea at May 14, 2026, 01:59 PM

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