Which statement best describes the tax treatment of life insurance death benefits when paid to beneficiaries?

Which statement best describes the tax treatment of life insurance death benefits when paid to beneficiaries?

• A. They are generally tax-free to beneficiaries; any interest earned on proceeds during the settlement may be taxable.
• B. They are always taxed as ordinary income.
• C. They are subject to capital gains tax.
• D. They are exempt only if the policy is MEC.

Answer: (A)