How are premiums and benefits of individual life insurance generally taxed?

In the context of individual life insurance, premiums paid are generally non-deductible for tax purposes. This is because personal life insurance is considered a personal expense, and the IRS does not allow taxpayers to deduct personal expenses, including premiums for life insurance policies, from their taxable income.

On the other hand, the death benefits provided by individual life insurance policies are typically non-taxable to the beneficiaries. This tax treatment is one of the major advantages of life insurance; when a policyholder passes away, the proceeds paid to beneficiaries do not generally incur federal income tax. This means that beneficiaries receive the full amount of the death benefit without any tax liability, provided the policy was not part of a transfer for value arrangement.

Understanding these tax implications is crucial for policyholders as it affects planning for their beneficiaries and determining the appropriate types of life insurance to purchase. Therefore, the correct assertion regarding the tax treatment of premiums and benefits in individual life insurance is indeed that premiums are non-deductible, while death benefits are non-taxable.