Tax tips about individual life insurance

These are the basic principles of taxation of individual life insurance:

1. Premium payments on individual life insurance are not tax deductible.
2. Policy proceeds paid to individual beneficiaries as death benefits are not taxable income.
3. Policy loan proceeds are not taxable income.
4. In most U.S. states the life insurance beneficiaries may be required to pay federal and state death taxes of the decedent if other provisions are not made by the estate.
5. Interest or increase in policy value can be taxable at withdrawal but most policyholders use tax-free loans to avoid taxation.
6. The sale or transfer for value of a life insurance policy can be a taxable event if the cash surrender value exceeds the tax basis of the policy.
7. A gift of a life insurance policy to a charity creates a tax deduction for the full value of the gift. No gift tax is applicable.
8. Life insurance proceeds payable to a religious, charitable, or educational organization is not included in the insured’s taxable estate.

These are the general tax principles for individuals; some exceptions may exist. Also this list does not consider any possibility where a business or a trust may be involved. For more information, see this expanded article at LifeHealthPro.