Tax Facts on Life Insurance

Taxes, nor insurance, is universal across all fifty states. Laws vary on both which often confuses people. However, there are universal tax facts that apply to life insurance that the insured should both know. Stonewall Grace Insurance is up to par with both the state and federal laws. Educating clients before they purchase life insurance is essential. Most life insurance holders only know that their premiums are not tax deductible but the relationship between tax and insurance knowledge stops there.

Surrendering the Policy

By surrendering  a life insurance policy to the insurance company or for whatever reason the policy lapses, any profit obtained is taxable at regular income tax rates.  

Taxes on Loan Against Policy

The insured can borrow against  a life insurance policy.  In this loan against the policy, the money received is generally not taxable as long as it is within non-taxable limits.

When the Beneficiary is a Charity or Church

If a church or charity is the beneficiary of a life insurance policy, they are generally still tax exempt from the proceeds. However, the charity or church must be recognized by the state as well as the federal government to be free of taxation.

Exception to Rule Number One

There is an exception to the insured’s premium being tax deductible. If the policy was gifted to a trust, charity, or church, the premiums paid by the insured are tax deductible being they will be receiving the proceeds upon the policy holder’s death.

These are only a few tax facts a life insurance policyholder should know and each one answered are only answered in a way that IRS jargon does not confuse. By contacting Stonewall Grace Insurance, not only will life be insured, tax crisis is avoided.