Call Us (904) 646-0310 ☰ ˟
Logo
Call Us: (904) 646-0310
  • Home
  • Get A Quote
    • AutomobileImage of right arrow
      • Auto Insurance Quote
    • Business & CommercialImage of right arrow
      • Business Owners (BOP) Quote Form
      • Commercial Auto Insurance Quote
      • Workers Compensation Quote
    • HealthImage of right arrow
      • Health Insurance Quote
      • Long Term Care Insurance Quote
    • HomeownersImage of right arrow
      • Homeowners Insurance Quote
    • LifeImage of right arrow
      • Life Insurance Quote
    • MotorcycleImage of right arrow
      • Motorcycle Insurance Quote
  • Customer Service
    • AutomobileImage of right arrow
      • Add Driver to Existing Auto Policy
      • Add Vehicle to Existing Auto Policy
      • Remove Driver from Existing Auto Policy
      • Remove Vehicle from Existing Auto Policy
      • Request ID Card for Auto Policy
    • HealthImage of right arrow
      • Request Declaration and Coverages Page for Existing Health Insurance Coverage
    • HomeownersImage of right arrow
      • Request Declaration and Coverages for Existing Homeowners Insurance Coverage
      • Request Evidence of Insurance
    • LifeImage of right arrow
      • Request Declaration and Coverages Page for Existing Life Insurance Coverage
    • MotorcycleImage of right arrow
      • Add Driver to Existing Motorcycle Policy
      • Add Motorcycle to Existing Policy
      • Remove Driver from Existing Motorcycle Policy
      • Remove Motorcycle from Existing Policy
      • Request ID Card for Motorcycle Policy
  • Claims
    • AutomobileImage of right arrow
      • Auto Accident Claim
    • HomeownersImage of right arrow
      • Property Loss Claim Form
  • Educational Services
  • Resources
    • Secure File Area
    • Refer a Friend
    • Important Links
    • Calculators
    • Insurance Glossary
    • Frequently Asked Questions
    • View our Blog
  • About Us
    • About Us
    • Location Map
    • Employee Directory
    • Testimonials
    • Privacy Policy
  • Contact Us
Auto & Home

Auto & Home

We browse through a wide variety of coverages and find the right one for you.

Get a Quote
Business

Business

We browse through a wide variety of coverages and find the right one for you.

Get a Quote
Health

Life & Health

We browse through a wide variety of coverages and find the right one for you.

Get a Quote
RV

Recreational

We browse through a wide variety of coverages and find the right one for you.

Get a Quote
Annuities

Annuities

We browse through a wide variety of coverages and find the right one for you.

Get a Quote
Home > Blog > Is Life Insurance Taxable? Here’s What You Need to Know
SUNDAY, OCTOBER 2, 2022

Is Life Insurance Taxable? Here’s What You Need to Know

We get it: Life insurance can be complicated.

It’s further complicated by the fact that everyone’s situation is different. So, it’s a good idea to contact your tax professional/financial consultant for specific advice about your situation. But, for the more general issues, we hope to help guide you through the winding paths of the tax implications of life insurance.

So, lace up your boots and pack your bag, because we’re headed straight into your FAQ:

  1. Do you have to pay taxes on money received as a life insurance beneficiary?
  2. Are life insurance premiums tax-deductible?
  3. How can somebody be sure their beneficiaries won’t have to pay taxes on their death benefit?
  4. What is taxable gain on life insurance?
  5. Do you have to pay taxes when cashing in a life insurance policy?

1. Do you have to pay taxes on money received as a life insurance beneficiary?

Generally speaking, you will not have to pay taxes on life insurance proceeds you receive as a beneficiary. If life insurance premiums are paid with after-tax dollars, there should not be a taxable event to the beneficiary.

A possible exception is if the life insurance policy was part of a compensation package. In some cases, the employer may pay the premiums and write it off on their taxes as a business expense. This could possibly result in the beneficiaries paying taxes on the funds they receive.

 

Typically, beneficiaries are not taxed.

Read more: The Gift of Life Insurance for Children

 

2. Are life insurance premiums tax-deductible?

If you are an individual paying life insurance premiums on your personal policy, no. Your premium payments are not tax-deductible.

If you are an employer, it’s best to talk to your tax adviser. It is possible that if you, as an employer, are paying the premiums for your employees’ polices they may be tax-deductible.

3. How can somebody be sure their beneficiaries won’t have to pay taxes on their death benefit?

The short answer: pay your premiums with your taxed earnings. Easy, right?

Basically, taxes have to be paid at some point. So, as long as you are making the premium payments, your beneficiaries shouldn’t have to pay taxes on their funds.

However, if your life insurance policy is part of a compensation package from your employer, your beneficiaries may need to pay taxes on the funds they receive. This is because your employer may write off the premium payments they provide on their taxes, which means the taxes aren’t paid.

4. What is taxable gain on life insurance?

The taxable gain is the dollar amount you receive from the cash value of your policy, minus the premium payment(s) you paid into your life insurance policy.

This only applies to life insurance policies that generate a cash value, and are surrendered before the death of the person whose life is being insured.

An example might help!

Let’s say you have a whole life insurance policy with Auto-Owners (of course). If you decide to “cash out” or “surrender” your policy early, you will receive the cash value of your policy.

So, let’s say you paid $15,000 in premium payments on your policy so far. During this time, your policy accumulated a $20,000 cash value. So, that $5,000 difference is considered your gain and is therefore taxable because of the interest that accrued on your policy.

Now, before you get any ideas, please remember the goal of life insurance is to provide financial help after the loss of a loved one. It is not an investment strategy.

Read more: Whole Life Insurance vs. Term Life: What You Need to Know

 

5. Do you have to pay taxes when cashing in a life insurance policy?

This is an emphatic yes!

Remember, the goal of life insurance is to provide financial help after the loss of a loved one. It is not an investment strategy. This is why the federal government taxes the gains when an individual cashes in the life insurance policy.

When you “cash in” a life insurance policy with a cash value, you are taxed on the gains. Your taxable gain is the dollar amount you receive from the cash value of your policy, minus the premium payment(s) you paid (read question four for a detailed example).

Each situation will be different, but expect taxes.

Read more: How to Help Your Small Business Employees Save for Retirement (with Annuities)

Overall, it’s a good idea to talk with your financial consultant/tax adviser/independent insurance agent/attorney/CPA/accountant. It’s worth the time, and your peace of mind.

Posted 3:33 PM

Share |


No Comments


Post a Comment
Required
Required (Not Displayed)
Required


All comments are moderated and stripped of HTML.

NOTICE: This blog and website are made available by the publisher for educational and informational purposes only. It is not be used as a substitute for competent insurance, legal, or tax advice from a licensed professional in your state. By using this blog site you understand that there is no broker client relationship between you and the blog and website publisher.
Blog Archive
  • 2023
  • 2022
  • 2021
  • 2020
  • 2019
  • 2018
  • 2017
  • 2014

  • insurance agency(57)
  • insurance agent(54)
  • life insurance(33)
  • jacksonville(30)
  • financial planning(16)
  • long term care(13)
  • homeowners insurance(11)
  • home insurance(11)
  • flood insurance(10)
  • medical insurance(10)
  • retirement(9)
  • auto insurance agency(9)
  • health insurance(9)
  • long-term care insurance(8)
  • business insurance(8)
  • auto insurance(7)
  • financial planner(7)
  • ira(6)
  • car insurance(6)
  • insurance(6)
  • medicare(6)
  • commercial insurance(6)
  • 401(k)(5)
  • disability insurance(5)
  • commercial insurance agency(5)
  • car insurance agency(4)
  • ltci(4)
  • whole life insurance(3)
  • storm(3)
  • automobile insurance(3)
  • term life insurance(2)
  • hurricane(2)
  • health insurance agency(2)
  • retirement planning(2)
  • life insurance agency(2)
  • della porta group(2)
  • long-term disability insurance(1)
  • family(1)
  • family insurance(1)
  • emergency fund(1)
  • loans(1)
  • budgeting(1)
  • maintenance(1)
  • the della porta group(1)
  • #businessinsurance(1)
  • hurricane preparedness(1)
  • long term budgeting(1)
  • disability(1)
  • auto insurance jacksonville fl(1)
  • permanent insurance(1)

View Mobile Version

Contact Us Today!
(904) 646-0310

Social Social Social Social

Resources

  • Products
  • Customer Service
  • Report a Claim
  • About Us
  • Refer A Friend
  • Our Carriers
  • Blog
  • Contact Us

Contact Us

7807 Baymeadows Rd E. Ste.301
Jacksonville, FL 32256

P: (904) 646-0310 | Fx: (904) 646-1143 | info@dellaportagroup.com
© Copyright. All rights reserved. | Powered by Insurance Website Builder