If a Life Insurance Policy Lapses Due to Nonpayment of Premiums

Multiple Choice

If a life insurance policy lapses due to nonpayment of premiums or from borrowing too much from the policy, all policy loans are treated as being "forgiven" by the IRS, meaning that the loan is no longer considered to be a loan and the funds are not required to be paid back. In this case, then, forgiven loan amounts are treated as __________.

A) Dividends that are taxable to the policy holder
B) Tax free withdrawals to the policy holder
C) Ordinary and taxable income to the policy holder
D) Additional premium payments to the policy holder