Any cash value beyond the total amount of premiums paid is most likely taxable at ordinary income tax rates. It also depends on ownership, beneficiary (e.g. a Trust) but for most of us the first answer is correct.
"Insurance and Taxes. No. All proceeds or withdrawals from any insurance policy are not taxable." This is not true. If you cancel a life insurance policy, the growth on the cash value IS TAXABLE. If you do not surrender your policy, the money is taken as a loan and therefore not taxable, but interest that has to be paid back to the insurance company grows.
When an insured purchases an insurance policy they pay the insurance company money for the insurance coverage. This money the insurance company collects is called insurance "premiums". The insurance company, using the law of large numbers, collects more money in premiums than it pays out in claims. The insurance also makes alot of its money by taking the money earned from premiums and then investing it. As we all know that Life insurance policy cash values are accessed through withdrawals and policy loans. However, withdrawals are taxable to the extent they exceed basis in the policy. Loans outstanding at policy lapse or surrender before the insured's death will cause immediate taxation to the extent of gain in the policy and hence benefits the company.
I assume you are asking that if you take a cash loan, withdrawal or surrender your policy for the cash value, will the money you receive be taxable? On a loan no, never. On a Surrender or withdrwal, only the cash that exceeds the amount of premiums you paid. Before surrendering a policy, check and see if you can get an offer from a life settlement. It usually is worth more than the cash value.
If the policy that you have with United Investors is a whole life policy and has accumulated cash value then you can take a policy loan against it. And then you would pay that money back plus interest which is basically like paying yourself back. Or you can cash in the life insurance policy and take the cash value with you
if they are death benefit proceeds no. if it is cash value proceeds then any withdrawals over the premiums paid are taxable, any loans on the cash value are not taxable. if it is a hybrid/combo life/long term care policy, then no they are not. all of this is assuming that the policy was paid with after tax dollars, not pre tax.
No. That's why the proceeds aren't taxed as income. Answer Correct...premiums are taxable. Death benefits are generally not taxed as income. Also if it is permanent life insurance policy and has some cash value built up and you take that cash out, the amount of cash less the premiums paid into the policy ("your gain") is taxable. Additional comment: Actually, if you take your cash value out as a loan, you do not have to pay taxes on "gains" as long as the life insurance is in place, hopefully until you die.
The cash value is the amount of money your insurance policy is worth to the owner of the policy if the insurance is cancelled and the policy terminated. The insurance company will mail a check to the to the policy owner upon policy termination or cancellation by request of the owner. I would strongly encourage you to consult a professional in your area before cancelling an existing policy. There may be other options and alternatives to access the value of the policy without cancelling the insurance policy.
If your policy has a cash value associated with it you can get money for surrendering the policy. Term Life has no cash value, but a whole life or universal life policy may have a cash value in it. That depends on what type of policy it is, how long it has been in force, and assuming the payments have been made.
Cash Value of Life Insurance Taxable?There are two ways to access cash in a life policy. Withdrawals and loans. You are not required to pay back loans from a policy, sincy you are loaning yourself your own money. If you withdraw the money any amount over what you have paid in premiums is taxable.If you loan out the money it is not taxable as long as the policy is still in force. You have to be carefull not to take out too much in a loan or it will implode the policy. Talk to your agent or the company to find out the max loan amount available while still keeping the policy in force.Most people withdraw up to what they have paid in, and then loan out the rest.If the cash value grows too large compared to the death benefit it becomes a MEC or modified endowment contract, and is then subject to a 10% tax. A good agent who is knowledgable in designing a policy will be able to keep this from happening.Finally, be aware that a policy loan is not free. That is, the policy will prescribe the interest rate at which the loan is made. While it is generally less than the market rate of interest would be for a commercial or personal loan, you will end up paying back more than you borrow, or the dividend that you might otherwise receive (in the case of a mutual company) may be less to account for the interest on the loan. Check the terms of the policy for details. If the loan is not repaid prior to the time of death, the loan balance, including accrued interest, will be deducted from the death benefit.More information:It depends on the type of "cash out" you applied for and which state you live in. You should be able to obtain some form of written verification regardless, so contact your life company.(1) While life insurance policy is enforce, the cash value of the policy and its growth are not considered taxable. (2) If you surrender or cash-in the policy, and the total amount of cash value returned to you is less than the total amount your policy invested into cash value, it is considered a return of principle and is not taxable. (3) If the cash value returned to you is greater than the amount your policy invested into cash value, the amount in excess of the amount invested into cash value is considered a "gain" and is taxable as income. (4) If the policy you surrender (cash-in) is considered a MEC or Modified Endowment Contract (the company can inform you if it is), cashing-in or borrowing against the cash value may be fully taxable. (Consult a tax adviser if this is the case).Be cautious of plans to take loans from your life insurance to avoid taxation. These loans are still taxable beyond what you paid in if your policy ever disappears while you are alive. For this reason, it is critical to carefully review your plan each year, particularly if you plan to take loans or have loans against your policy.
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