Are there tax implications to term life insurance?
One of the most challenging things to understand about any financial product are the ways that it can affect your taxes. With all of the different deductions, penalties, and brackets, dealing with any tax situation can be confusing, and term life insurance is no different, many want to know “Is term life insurance taxable?” This information should help clear up any questions you have about taxes and your term life insurance policy, but it is important to keep in mind that every situation is different and you should always talk to a licensed accountant to understand the tax implications of any financial product.
Term Life Insurance and Taxes: While You’re Paying
While you are paying for your term life insurance policy you may be hoping to find out that you can write your payments off on your taxes in some way. However, you are going to be disappointed. The IRS has decided that life insurance payments are personal expenses and thus cannot be written off on your taxes. This means that you are paying for your term life insurance policy out of your post tax income and receiving no money from the government to do so.
Term Life Insurance and Taxes: In the Event of a Payout
Not everything involving insurance and taxes is frustrating, though. One of the best things about life insurance policies is that there are not many term life insurance taxable situations. This means that if the worst should happen your insurance payout will not be taxed unless there are unpaid loans taken out against your policy, a rarity for term life insurance. The other way that your term life insurance payout can be taxed is that it is included as part of your estate. This means if your term life insurance pushes the value of your estate to more than $5.45 million, it will be subjected to the estate tax.
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