How are life insurance proceeds taxed?

Taxes, Insurance
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4 weeks ago
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A well structured life insurance policy is almost always 100% INCOME TAX FREE, but it can be complicated or taxed if:

  1. You have more than two parties to a life Insurnce policy - example if you have the a company as owner, the owner as the insured and the spouse of hte owner as beneficiary (three party insurance), it will be a taxable event.
  2. You transfer ownership of the policy via a sale, many times it can cause income tax on transfer or a taxation of the death benefit (especially if sold to an in east or - call Investor Owned Life Insurance or some similar name.

However, if you own your own life insurance policy (vs. having it be owned by a trust or other entity), it is typically included in your estate and could be subject to ESTATE TAX.

Here is a good summaries from Investopedia:

Estate Tax: http://www.investopedia.com/articles/pf/06/transferlifeinsurance.asp

Income Tax: http://www.investopedia.com/articles/personal-finance/121914/life-insurance-policies-how-payouts-work.asp

 

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