Which of the following statements best describes the general tax treatment of life insurance pre- and post-death distributions?
A) Most pre- and post-death distributions from a life insurance policy are income tax-free, but they may be subject to AMT.
B) All distributions from a life insurance policy at the insured's death are income tax-free, but pre-death distributions are subject to income taxation.
C) Most distributions from a life insurance policy at the insured's death are income tax-free, but pre-death distributions may be subject to income taxation if the withdrawal exceeds premiums paid.
D) Most pre- and post-death distributions from a life insurance policy are subject to income taxation to the extent there is gain in the policy
Ans: C) Most distributions from a life insurance policy at the insured's death are income tax-free, but pre-death distributions may be subject to income taxation if the withdrawal exceeds premiums paid.
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