Taxes and Life Insurance Proceeds

It is commonly known that the proceeds from life insurance coverage can provide survivors with a “safety net” for a myriad of possible needs like paying off debts, taking care of the insured’s funeral and other final expenses, replacing income, and / or ensuring a child or grandchild’s future college education fund.

But when you factor in Uncle Sam’s portion in terms of taxation, how much of the policy’s proceeds will actually be received?

The answer is that generally speaking, the funds that are received from a life insurance policy are not considered to be taxable income to the recipient(s) – and in turn, this money will not have to be reported on the recipient’s taxes as such.

 

Beneficiaries, Life Insurance Proceeds, and Taxes

According to the IRS, “generally, the life insurance proceeds you receive as a beneficiary due to the death of the insured person are not includable in gross income and you don’t have to report them.”

Because a life insurance beneficiary won’t typically be taxed on the policy’s proceeds, the entire amount of the death benefit can be put towards various needs. So, in addition to providing survivors with a financial “safety net,” life insurance can typically also offer the peace of mind in knowing how much a beneficiary can anticipate.

 

A Few Exceptions to the Rule

While the money from life insurance proceeds is not typically considered to be taxable, there can be a few exceptions. For example, in some instances, if a policy’s proceeds are paid out to the insured’s estate – and these funds add to the overall value of that estate – then it may be that the money will be subject to estate taxes.

Also, while many beneficiaries of life insurance proceeds will take their funds as one single lump sum, there are some scenarios where the money will be kept at the insurance company and interest is generated from the policy’s proceeds.

In this case, the interest earnings may be subject to taxation. For example, if the amount of the policy’s death benefit is $200,000 and these funds generate $10,000 in interest for one year, then the $10,000 will be considered taxable to the beneficiary. (The initial $200,000 that generates this interest, however, will not be).

 

Locating the Right Prospects for Offering Life Insurance Protection

Life insurance protection is essential for a long list of different situations – and it can be essential for both personal and business needs. But without viable prospects to contact, even the best type of life insurance solutions won’t matter.

But, if you want to ensure that you are keeping your pipeline of potential life insurance prospects full and in turn, that you are earning thousands of additional commission dollars each and every month, just contact us, toll-free, at 1-800-643-6143.

When you do so, you’ll be joining hundreds of other life insurance professionals who are already reaping the benefits of having a full schedule of people to talk to about life insurance benefits on a regular basis.

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Brian J. Kay, Executive Director, Leads4Insurance
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