Taxes Associated with Life Insurance
What are
the taxes on life insurance cash values, dividends and death
benefits?
The "interest build-up" portion of the annual increase in the
policy's cash value is not taxed currently to the policy owner.
Dividends generally are considered to be a "return of premium" and
are also not taxable to the policy owner. Although in the typical
case, life insurance death proceeds will not be subject to income
taxation, these proceeds may be subject to federal estate taxation.
If the insured has any elements of ownership in the policy at the
time of his/her death, the proceeds are includable in the insured's
gross estate for federal estate tax purposes. State inheritance
taxes and federal gift taxes may also apply to life insurance
policies/proceeds under specific circumstances. You should contact
your tax advisor regarding questions concerning the possible income,
estate and gift tax consequences surrounding any life insurance that
you currently own or are contemplating purchasing.
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