Which of the following is true about federal taxation of individual life insurance premiums?

The correct statement regarding the federal taxation of individual life insurance premiums is that premiums are not tax-deductible and are paid with after-tax dollars. This means that when an individual pays premiums for their life insurance policy, they do so using income that has already been subjected to federal income tax.

As a result, these payments do not reduce the individual’s taxable income. This treatment aligns with tax laws that recognize life insurance premiums as a personal expense, much like paying for other personal insurance (e.g., homeowners or auto insurance), which generally does not offer tax advantages to the policyholder.

This understanding plays an important role in personal financial planning, as individuals need to recognize how their life insurance expenses fit into their overall budget without expecting a tax deduction for those costs.