by There’s a reason why the job outlook for life insurance agents is expected to rise by seven percent over the next decade. If you’re the main breadwinner, life insurance is a great way to make sure your family is taken care of financially in the event of the unexpected.
However, there is still a lot of confusion surrounding life insurance and taxes. For example, is the payout that your family receives taxable? Are premiums taxable?
In this article, we’ll answer all of your questions when it comes to life insurance and taxes. That way, there are no unforeseen roadblocks when you need the money the most. Let’s get started!
Is the Life Insurance Payout Taxable?
The biggest benefit of life insurance is that the death payout is typically tax-free. That means your family will be able to access the funds from your policy without needing to pay taxes on them.
However, there are some exceptions, which we’ll go over in the next section.
When Is Life Insurance Taxable?
As we mentioned, there are few circumstances when the death payout of a life insurance policy will be taxable. The same goes for selling your policy. However, there are tax exceptions that run throughout the policy itself.
These are some of the scenarios when life insurance proceeds are taxable:
- When you withdraw money from the cash value
- Surrendering life insurance policy for cash
- Having the life insurance policy go to your estate (instead of a beneficiary)
- The interest amount that you receive from a life insurance policy as a beneficiary
When To Consider A Modified Endowment
The whole life insurance policy we’ve been discussing in this article does have a lot of advantages when it comes to taxes. But, it’s also a lot more hands-on in terms of managing and making regular payments.
So, what if you want a less involved policy that’s a one-time payment? If that’s the case, look into a modified endowment policy. There are a lot of advantages that come with it.
But, the biggest is that you can pass down tax-advantaged wealth to your heirs. Make sure to check out this article to understand the benefits.
Enjoy Learning About Life Insurance And Taxes? Keep Reading
As you can see, for the most part, your life insurance policy is not taxable. But, there are plenty of circumstances where you might have to deal with both life insurance and taxes.
This is mainly true if you access the cash in your policy in some form. However, as long as you follow the advice in this guide, then you have the best chance of minimizing any financial losses to the taxman.
If you found this article informative, then you’re going to love some of the other topics that we have. We have categories in everything from gaming to money. So, keep reading to learn more
