how do they determine profit on a pd up 62 yr old policy whi
by Guest » Thu Mar 31, 2011 07:43 pm
tax on $1,000 policy cashed in for $2468
Total Comments: 1
Posted: Fri Apr 01, 2011 12:16 am Post Subject:
If you're looking for possible taxable situations, here's the deal:
When a life insurance policy is surrendered for the cash value (as it's sound like yours was), any taxation is based on whether you "profited" from the transaction.
In this scenario, "profit" mean this: The total of the premiums you paid for this policy establishes what's called your "cost basis." When a policy is surrendered, an amount equal to your cost isn't taxed, but anything received in excess of your cost would be taxable at ordinary income tax rates.
For example: Your surrendered your policy for $5,000 and you paid $3,000 in premiums for that policy. Your taxable event is based on the $2,000 "profit" from the policy. We don't really call if profit, as life insurance cannot be termed an investment by law, but the gist is the same.
So... how much did you pay in premiums? Your insurer should easily be able to give you this information.
Posted: Fri Apr 01, 2011 12:16 am Post Subject:
If you're looking for possible taxable situations, here's the deal:
When a life insurance policy is surrendered for the cash value (as it's sound like yours was), any taxation is based on whether you "profited" from the transaction.
In this scenario, "profit" mean this: The total of the premiums you paid for this policy establishes what's called your "cost basis." When a policy is surrendered, an amount equal to your cost isn't taxed, but anything received in excess of your cost would be taxable at ordinary income tax rates.
For example: Your surrendered your policy for $5,000 and you paid $3,000 in premiums for that policy. Your taxable event is based on the $2,000 "profit" from the policy. We don't really call if profit, as life insurance cannot be termed an investment by law, but the gist is the same.
So... how much did you pay in premiums? Your insurer should easily be able to give you this information.
InsTeacher 8)
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