Principal, LifeNet Insurance Solutions, Redmond, WA
In most cases the proceeds of life insurance are tax free to the beneficiary. Therefore, it is not considered taxable income.
If you are unclear about your particular situation, I would contact an estate planning attorney in the state in which you live to discuss your individual situation. Hope this helps!
Co-Founder, TermInsuranceBrokers.com, Goldenzweig Financial Group, Las Vegas, Nevada
Life insurance proceeds are income tax-free, however, the monies can be included in the calculation of the estate for tax purposes if the policy was not structured properly.
When structuring a policy, a good rule of thumb is to make sure you do not violate the "goodman triangle." In short, you want to have two of the three parts of the structure being the same entity (e.g. owner and insured are the same and beneficiary is different or owner and beneficiary are the same and the insured is different).
I highly recommend consulting with an independent life insurance broker who has a strong background in estate planning - life insurance can be used in a number of ways including serving both personal and business needs.
There are a few answers to your question. If you are speaking of being the beneficiary of death proceeds then the answer is no, those are tax free. If you are the beneficiary of life proceeds through an estate, then yes, those are subject to estate taxes. If you are speaking of borrowing from a cash value life insurance policy, then no, those are considered a loan and not subject to income taxes. If you are cashing out a cash value life insurance policy, then yes, the proceeds over premiums paid are subject to income tax.
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If you are unclear about your particular situation, I would contact an estate planning attorney in the state in which you live to discuss your individual situation. Hope this helps!
When structuring a policy, a good rule of thumb is to make sure you do not violate the "goodman triangle." In short, you want to have two of the three parts of the structure being the same entity (e.g. owner and insured are the same and beneficiary is different or owner and beneficiary are the same and the insured is different).
I highly recommend consulting with an independent life insurance broker who has a strong background in estate planning - life insurance can be used in a number of ways including serving both personal and business needs.