Question

How are premiums paid by the insured for personally owned disability income insurance treated for tax purposes?

a) Tax-deductible
b) Tax-free
c) Taxable
d) Subject to capital gains tax

Answer 1

Premiums paid for personally owned disability income insurance are not tax-deductible, meaning they are paid with after-tax dollars, and typically, the benefits received are tax-free.

Step-by-step explanation:

The premiums paid by the insured for personally owned disability income insurance are not tax-deductible. This means that the money spent on these premiums is paid with after-tax dollars. When it comes to receiving the disability income benefits, if the premiums were paid with after-tax dollars, the benefits are generally tax-free. However, if the premiums were paid with pretax dollars, or if an employer pays for the policy and does not include the premiums in the employee's taxable income, then the benefits would be taxable.