Whole Life Insurance Question

by maltm95234 » Fri Oct 15, 2010 05:28 pm

Sorry, this is kind of complex:

1. I am the beneficiary of a Whole Life insurance policy with a $10,000 face value. I just received the letter from Met Life today-I guess they couldn't find me until now. The deceased died in 1988.

2. The policy was paid on from 1965-1975, so about 10 years. I don't think I will be receiving the whole face value, since it wasn't paid on until my elderly relative died.

3. But, does anyone have any idea about how much I will receive? (Just a rough estimate?)


Total Comments: 9

Posted: Fri Oct 15, 2010 06:01 pm Post Subject:

The policy could very well have been a "10-pay" policy, meaning it was fully paid for by 1975 -- premiums on a $10,000 policy would have been relatively low. If that's the case, you will receive the full $10,000 plus interest on the $10,000 from the date of death to the time payment is made.

22 years at about 5% (depending on insurance company rates and applicable state law) could easily double the benefit to $20,000 or a little more. But all of the gain over the $10,000 face amount is taxable as income to the beneficiary in the year received. The $10,000 face amount is paid income tax-free.

Posted: Mon Oct 18, 2010 08:16 am Post Subject:

Well whatever you will receive will be a bonus, some thing you can invest on buying an insurance policy for yourself.

Posted: Sat Oct 23, 2010 04:55 am Post Subject:

But all of the gain over the $10,000 face amount is taxable as income to the beneficiary in the year received.

Will the tax rate remain constant for any amount over the $10,000 face amount? Or will it vary beyond a certain limit?

Posted: Sat Oct 23, 2010 11:00 pm Post Subject:

Taxation of "interest" (aka "gain) is always based on a person's taxable income (Adjusted Gross Income/"AGI" -- the last line on Side 1 of the Form 1040 tax return).

If the Death Benefit is $10,000, and the interest paid with the death claim is $50, then your AGI is increased by those $50. It could be just enough to bump you from the 26% tax bracket into the 31% bracket, for example, and cause you all kinds of grief. (Chances are that won't be the case, but it's something you would want to know . . . and perhaps might make you want to wait until Jan 1, 2011 to file the death claim.)

Posted: Sun Oct 24, 2010 04:30 am Post Subject:

Why would be bumped into the 31% tax bracket in your example cause all kinds of grief? In your example, it raises his tax bill by $2.50.

Posted: Wed Oct 27, 2010 10:53 pm Post Subject:

I'm also wondering about the grief.

Posted: Thu Oct 28, 2010 12:49 am Post Subject: whole lifre

donate 50.00 to something in the deceased name charity write off

Posted: Sat Oct 30, 2010 03:53 pm Post Subject:

Donating $50 doesn't change anything other than giving a charity $50 and you less money than you would otherwise have.

Posted: Mon Nov 01, 2010 02:33 am Post Subject:

I'm seconding questioning the "all kinds of grief" comment.

The bump up in marginal income tax owed is only owed on the extra income. Does suck from the stand point of having to pay more money in taxes on that extra money paid by the life insurance company, but it doesn't really make life any more difficult.

Though the advice to hold off being paid the money unitl next year isn't terrible advice if you truly believe that your income will be lower next year.

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