People often wonder if there are any tax implications with life insurance. Questions range from, “Will my beneficiaries have to pay taxes when the death benefit of my life insurance policy is paid out to them?” to “Are my premium payments tax deductible?” The laws and regulations surrounding life insurance and taxes are extensive, but we’ve broken down some of the main things for you to consider.
Is Life Insurance Taxable?
The answer is generally no, life insurance proceeds are not taxed. Your beneficiary should receive the full amount of the policy since life insurance proceeds aren’t taxable. However, in the event that a beneficiary receives installments over time (not a lump sum distribution) and those installments earn interest, there would be taxes due on the interest earned.
Can I deduct my premium payments when I file my taxes?
Life insurance in the eyes of the IRS, so you won’t be able to deduct your premiums on your Federal tax return. Just to be sure, check with your local tax office, since tax laws vary quite a bit from state to state.
Anything Else I Should Know?
Lump sum payments to beneficiaries and additional cash value built over time are generally not taxed.
You may find yourself in a position to surrender your policy and receive a payout in one lump sum. This will not be taxed as long as the payout is less than what you’ve paid in premiums. However, keep in mind that if you surrender a policy that has built up more cash value than you’ve paid in premiums, that extra amount is taxable.
If you want to withdraw part of the cash value of your policy, know that as long as the amount taken out is less that the premiums you’ve paid into your policy, the withdrawal will not be taxed. Don’t forget, though, that doing that lessens the death benefit to your beneficiaries!
Understanding life insurance and taxes doesn’t have to be a headache. With help from our team at Gerber Life Insurance, you can not only find the best policy for you and your family, but you can do so with the confidence of knowing that there won’t be any surprises for you or your family down the road.
Ready to take the next step? Contact us for a personalized quote or call us toll-free at 1‑800‑704‑2180 today.
Please note: Articles and other information included on this website are intended for the general interest of our readers and are not intended to express the positions or views of Gerber Life or to provide or constitute legal, financial, health or other advice. Gerber Life makes no claims representations or warranties as to the accuracy, completeness, or appropriateness of this general interest information for your particular circumstances. If you need legal, financial, health or other services, you should contact a duly licensed professional.