Arkansas Life and Health Insurance Practice Exam

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Prepare for the Arkansas Life and Health Insurance Exam. Utilize flashcards and multiple-choice questions with hints and explanations for each question. Get thoroughly ready for your certification test!

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Why are dividends not taxable as income when paid out to a participating policyholder?

  1. They are considered a capital gain

  2. They represent a return of a portion of the premium paid

  3. They are classified as gifts

  4. They are considered interest

The correct answer is: They are considered a capital gain

Dividends paid out to a participating policyholder are not taxable as income because they are considered a return of a portion of the premium paid. This means that the policyholder is essentially receiving back a portion of the money they have already paid into the policy, rather than earning additional income. This is why dividends are not classified as taxable income.

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