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Life is complicated. Choosing the right life insurance policy shouldn't be.
 

Great news...Since life insurance premiums are typically paid with after-tax dollars (money that has already been taxed), life insurance proceeds payable to a named beneficiary (a real person) are free of federal income tax. So, 100% of the benefit is tax free.

However, if the life insurance death benefit is paid in installments instead of a lump sum, the interest portion (if any) is taxable at ordinary income rates. The principal is always tax-free.

The insurance proceeds may be included in the taxable estate of the owner. Not to worry, though... estate taxes are not an issue for most people. The only time they become an issue is if the net taxable estate (after certain deductions)at the Federal level is over $5.6 million in 2018. You may also have to confirm whether in fact the state in which the decedent died has an estate or inheritance tax independent of the federal tax.  At that point the beneficiary would have to worry about estate taxes.



Posted 2:39 PM

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