We get it: Life insurance can be complicated.
It’s further complicated by the fact that everyone’s situation is different. So, it’s a good idea to contact your tax professional/financial consultant for specific advice about your situation. But, for the more general issues, we hope to help guide you through the winding paths of the tax implications of life insurance.
So, lace up your boots and pack your bag, because we’re headed straight into your FAQ:
- Do you have to pay taxes on money received as a life insurance beneficiary?
- Are life insurance premiums tax-deductible?
- How can somebody be sure their beneficiaries won’t have to pay taxes on their death benefit?
- What is taxable gain on life insurance?
- Do you have to pay taxes when cashing in a life insurance policy?
1. Do you have to pay taxes on money received as a life insurance beneficiary?
If you are an individual paying life insurance premiums on your personal policy, no. Your premium payments are not tax-deductible.
If you are an employer, it’s best to talk to your tax adviser. It is possible that if you, as an employer, are paying the premiums for your employees’ polices they may be tax-deductible.
3. How can somebody be sure their beneficiaries won’t have to pay taxes on their death benefit?
The short answer: pay your premiums with your taxed earnings. Easy, right?