In some business scenarios, where the company is the owner and beneficiary of the policy, the death benefit proceeds could be subject to the alternative minimum tax as well as ordinary income tax. With married couples, the death benefit proceeds could be subject to estate taxation upon the second death. But in general death benefit proceeds go tax free to the beneficiaries.
Cash values in a life insurance policy, while the insured is alive, could be taxable if the life insurance policy was classified as a modified endowment contract and was annuitized or policy loans of gain were taken. The gain in a non-modified endowment policy could also be taxed at ordinary income tax rates, if the policy lapsed with accumulated gain in the contract, receipt of any policy loans and any internal policy loans that exceed basis.
However, if a non-modified endowment policy is kept in force for the life if the insured policy loans of gain and withdrawals of basis could be tax free. But always consult your tax and legal advisers before moving forward with any purchase of a life insurance policy.
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Cash values in a life insurance policy, while the insured is alive, could be taxable if the life insurance policy was classified as a modified endowment contract and was annuitized or policy loans of gain were taken. The gain in a non-modified endowment policy could also be taxed at ordinary income tax rates, if the policy lapsed with accumulated gain in the contract, receipt of any policy loans and any internal policy loans that exceed basis.
However, if a non-modified endowment policy is kept in force for the life if the insured policy loans of gain and withdrawals of basis could be tax free. But always consult your tax and legal advisers before moving forward with any purchase of a life insurance policy.