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Tax tips about individual life insurance



Tax tips about individual life insuranceThis is a legacy web site and some information may be out-of-date. For more recent information and postings, seewww.tonynovak.com/cpa.

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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 atLifeHealthPro.


Opinions expressed are the solely those of the author and do not represent the position of any other person, company or entity mentioned in the article. Information is from sources believed to be reliable but cannot be guaranteed. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues or a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Tony Novak operates as an independent adviser under the trademarks “Freedom Benefits“, “OnlineAdviser” and “OnlineNavigator” but is not a representative, agent, broker, producer or navigator for any securities broker dealer firm, federal or state health insurance marketplace or qualified health plan carrier. He has no financial position in any stocks mentioned. Novak does work as an accountant, agent, adviser, writer, consultant, marketer, reviewer, endorser, producer, lead generator or referrer to other companies including the companies listed in the articles on this web site.

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