What Are the Income-Tax Consequences for Life Insurance Policies?

What Are the Income-Tax Consequences for Life Insurance Policies?

The value of a life insurance policy can impact a number of situations. For example, the possibility of a taxable gain if the policy is surrendered, which is often omitted in sales presentations. The inside interest is typically income tax deferred, which is either income-tax exempt or partially income tax exempt – depending upon how the policy terminates and the circumstance surrounding termination.

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How Does an Irrevocable Life Insurance Trust Work?

How Does an Irrevocable Life Insurance Trust Work?

An irrevocable life insurance trust is when the trust is the owner of the insurance policy, which keeps the proceeds of the life insurance out of the taxable estate. Also, gifts can be made to fund the premiums, which will ultimately reduce the taxable estate. After your death, the trust’s assets – also known as the insurance proceeds – are available to your beneficiaries income-tax-free.

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