Syndicated Financial Columnist, Host of the weekly talk show Steve Savant's Money, the Name of the Game, Scottsdale Arizona
Video Transcript: Today's question is, How is life insurance taxed? Well, if you use life insurance just for a death benefit and the death benefit proceeds are paid directly to the beneficiaries, generally speaking it's tax free. If you're using life insurance as an income play, as long as you keep the contract enforced for the life of the policy insured, those proceeds, whether it's withdrawals to basis or policy loans to gain, also will be tax free.
But if you are able to go ahead and use a permanent product, a cash value permanent product and you actually surrender the contract or it lapsed and there was gain in the contract, you will pay ordinary income tax on that contract on all the gain of the policy. So it's important whether you use it for indemnification, to know the rules of engagement on taxes as well as if you're using it for income.
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But if you are able to go ahead and use a permanent product, a cash value permanent product and you actually surrender the contract or it lapsed and there was gain in the contract, you will pay ordinary income tax on that contract on all the gain of the policy. So it's important whether you use it for indemnification, to know the rules of engagement on taxes as well as if you're using it for income.