What type of taxable income is derived from the income portion of a purchased life annuity?

The income portion of a purchased life annuity is best categorized as Savings Income. A life annuity involves a contract where an individual pays a lump sum to an insurance company or financial institution in exchange for a stream of income over a specified period or until death. The payments received include both a return of the principal and interest earned on that principal.

The interest portion of the payments is considered taxable income, as it reflects the earnings generated from the investment of that principal amount over time. Therefore, it aligns more closely with the concept of Savings Income, which encompasses returns derived from savings and investment assets, rather than labor compensation, capital from asset appreciation, or earnings from property rental.

This classification highlights the nature of the returns the annuity generates, emphasizing that it is largely a function of the individual's savings and investment strategy rather than employment or property ownership.