Term Life Insurance Articles
Income Tax And Term Life Insurance Benefits
2010-06-08
Term life insurance provides financial protection for a set period of time, which is usually 10, 20, or 25 years. If the insured dies during this time, the beneficiary will receive the death benefit. Once the policy expires, the insured can purchase another term insurance policy or the policy can be converted into a whole life insurance policy. Premiums for a term life insurance policy are usually cheaper than those for a whole life policy. This is because whole life is in effect for the entire life of the insured, whether they die at age 40 or 90. Term life is a good choice for a person who has large but temporary debts, such as a mortgage, car payments, or loans. Because this insurance is only valid for a certain amount of time, once it reaches its expiry date, it is likely that these huge debts have been paid off and there is no more need for such a policy.
The death benefits can be paid out in one of several different ways. You can opt to add accelerated death benefits. This allows a person who has a terminal illness to collect a certain portion of the death benefit before death actually occurs. If the policy contains an accidental death stipulation, the death benefit will be double or even triple the face value. Otherwise, the death benefit paid out to the beneficiary will be the face value of the policy.
The premiums paid for a term life insurance policy are not eligible to claim for tax purposes. If death occurs during the term that the life insurance policy is in effect, the life insurance benefits paid to the beneficiary are not taxed. The recipient does not have to claim them as income. However, if the beneficiary is the estate of the deceased, then they can be subject to taxation. You can transfer the ownership of your policy to another person before your death for a fee, if you wish. If this happens, the life insurance benefits that are paid to the beneficiary could very well be taxed. Another option is for you to request that the insurance company retain the funds from the death benefit and pay them out to the beneficiary in several installments. If you decide to choose this option, the funds that are being held will earn interest. The death benefit itself is not taxed, but any interest accrued will be subject to taxation.
If you are concerned about the tax implications of your insurance policy, you should discuss your questions with a qualified life insurance agent. They can help clarify what can be and cannot be taxed and can save you and your beneficiary money.
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Term life insurance provides financial protection for a set period of time, which is usually 10, 20, or 25 years. If the insured dies during this time, the beneficiary will receive the death benefit. Once the policy expires, the insured can purchase another term insurance policy or the policy can be converted into a whole life insurance policy. Premiums for a term life insurance policy are usually cheaper than those for a whole life policy. This is because whole life is in effect for the entire life of the insured, whether they die at age 40 or 90. Term life is a good choice for a person who has large but temporary debts, such as a mortgage, car payments, or loans. Because this insurance is only valid for a certain amount of time, once it reaches its expiry date, it is likely that these huge debts have been paid off and there is no more need for such a policy.
The death benefits can be paid out in one of several different ways. You can opt to add accelerated death benefits. This allows a person who has a terminal illness to collect a certain portion of the death benefit before death actually occurs. If the policy contains an accidental death stipulation, the death benefit will be double or even triple the face value. Otherwise, the death benefit paid out to the beneficiary will be the face value of the policy.
The premiums paid for a term life insurance policy are not eligible to claim for tax purposes. If death occurs during the term that the life insurance policy is in effect, the life insurance benefits paid to the beneficiary are not taxed. The recipient does not have to claim them as income. However, if the beneficiary is the estate of the deceased, then they can be subject to taxation. You can transfer the ownership of your policy to another person before your death for a fee, if you wish. If this happens, the life insurance benefits that are paid to the beneficiary could very well be taxed. Another option is for you to request that the insurance company retain the funds from the death benefit and pay them out to the beneficiary in several installments. If you decide to choose this option, the funds that are being held will earn interest. The death benefit itself is not taxed, but any interest accrued will be subject to taxation.
If you are concerned about the tax implications of your insurance policy, you should discuss your questions with a qualified life insurance agent. They can help clarify what can be and cannot be taxed and can save you and your beneficiary money.
