What happens to the proceeds from a non-qualifying life assurance policy?

In the case of a non-qualifying life assurance policy, the proceeds are typically subject to income tax. This means that the payout received by the policyholder is considered income, which is taxed at the individual's marginal tax rate.

The correct answer indicates that the proceeds are received net of 20% tax, which reflects the tax implications applicable to such policies. The 20% tax rate represents a common withholding tax that may be applied to the gain portion of the payout, depending on the rules at the time of the policy's maturity or the insured event.

Tax treatment for non-qualifying policies is distinct from qualifying policies, where proceeds might be received tax-free or under different tax structures. Understanding how different types of life policies are taxed can help individuals make informed decisions about their investments and insurance coverage.