Tax and life insurance

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PostPosted: Fri Apr 27, 2012 12:13 pm   Post subject: Tax and life insurance  

What is Income Tax Withholding and Taxable Gain, with regards to life insurance?


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Dean12
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PostPosted: Sat Apr 28, 2012 10:46 pm   Post subject:   

Under most circumstances, a life insurance DEATH BENEFIT is paid to the beneficiary income tax-free. This is not true when life insurance has been sold or transferred to another person for value (such as in a Life Settlement transaction), where profit is the motive. In such cases, the death benefit is taxable as income to the extent it exceeds the cost basis (amount paid to acquire the contract + premiums paid until the insured dies).



Life insurance cash value accumulates in a tax-deferred status. Withdrawals or loans in excess of the cost basis create a taxable event if the policy is later surrendered or lapses for nonpayment of premium (or insufficient cash value due to accrued interest on loans). Tax is assessed as ordinary income in most cases. There has been at least one Tax Court ruling that allowed variable life insurance gains to be taxed at the more favorable capital gains tax rate.



There is no income tax withholding on life insurance DEATH BENEFITS, withdrawals, loans, or surrenders. If a taxable event occurs, the taxpayer is responsible for that matter.



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PostPosted: Mon Jun 27, 2016 1:32 am   Post subject: surrendering a life insurance policy  

If i paid a total of $12,000 in premiums over the last 20 years and the surrender value of the policy is $12,402, what is the tax liability? Is is on $402 only or the entire $12,402.



Please let me know.


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Sergio Magana
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PostPosted: Mon Aug 15, 2016 7:40 am   Post subject:   

Congratulations! You achieved a 0.16% rate of return in 20 of the most dynamic years for the US Stock Markets. After tax, it might work out to 0.15%.



Buy whole life insurance . . . this is the great rate of return the agent is selling you.



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CA-licensed Life & Disability Analyst. CA Insurance Lic #0596197. Also investigating insurance company abuses, and providing litigation support/expert witness services. Send me your questions, and I'll send you my answers.
MaxHerr
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MaxHerr
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Joined: 29 Nov 2009
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Location: Pomona CA
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PostPosted: Thu Dec 06, 2018 8:01 pm   Post subject: surrender of life insurence policy  

what is the difference beteween taking cash value versus paid in amount as far as taxes are concerned.


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joe smith
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