10 Life Insurance Tax Facts to Know

Related: 11 Net Investment Income Tax Questions, Answered

Life insurance is an integral part of your client’s overall financial plan. A breadwinner’s untimely death can decimate a family’s financial stability and future goals.

But every client’s situation is different, and advisors and agents have the responsibility of choosing the right type of life insurance for each client. Add to that the complex tax rules associated with payouts, viatical settlements and dividends, among other implications, and even the most seasoned financial planners can be stumped.

In the gallery above are 10 important tax and financial planning questions agents and advisors should be aware of in regard to life insurance, according to ALM’s Tax Facts Online.

(Graphics: Chris Nicholls/ALM)

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10 Life Insurance Tax Facts to Know

Related: 11 Net Investment Income Tax Questions, Answered

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1. Are life insurance proceeds payable by reason of the insured’s death taxable income to the beneficiary?

2. If a taxpayer gives a spouse a life insurance policy, is the taxpayer entitled to a gift tax marital deduction?

3. Are dividends payable on a participating life insurance policy taxable income?

4. What are the tax results when life insurance or endowment dividends are used to purchase paid-up insurance additions?

5. If accumulated or post-mortem life insurance dividends are received by a deceased insured’s beneficiary, are they taxable income to the beneficiary?

6. What is the income tax treatment of an amount received from a viatical settlement provider?

7. Are there any exceptions to the general rule that viatical settlements are not included as taxable income?

8. Can a taxpayer deduct interest paid on a loan to purchase or carry a life insurance, endowment, or annuity contract?

9. What are the tax consequences of leaving life insurance cash surrender values or endowment maturity proceeds with the insurer under the interest-only option?

10. If life insurance proceeds are payable to a religious, charitable or educational organization, is their value taxable in the insured’s gross estate?

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10 Life Insurance Tax Facts to Know

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Related: 11 Net Investment Income Tax Questions, Answered

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1. Are life insurance proceeds payable by reason of the insured’s death taxable income to the beneficiary?

2. If a taxpayer gives a spouse a life insurance policy, is the taxpayer entitled to a gift tax marital deduction?

3. Are dividends payable on a participating life insurance policy taxable income?

4. What are the tax results when life insurance or endowment dividends are used to purchase paid-up insurance additions?

5. If accumulated or post-mortem life insurance dividends are received by a deceased insured’s beneficiary, are they taxable income to the beneficiary?

6. What is the income tax treatment of an amount received from a viatical settlement provider?

7. Are there any exceptions to the general rule that viatical settlements are not included as taxable income?

8. Can a taxpayer deduct interest paid on a loan to purchase or carry a life insurance, endowment, or annuity contract?

9. What are the tax consequences of leaving life insurance cash surrender values or endowment maturity proceeds with the insurer under the interest-only option?

10. If life insurance proceeds are payable to a religious, charitable or educational organization, is their value taxable in the insured’s gross estate?

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