Are Life Insurance Benefits Taxed - Is Inheritance Tax Due on Life Insurance Payouts?

March 21, 2011 - PRLog -- Are Life Insurance Benefits Taxed

Are Life Insurance Death Benefits Tax Free?

Actually, one of the big advantages of leaving money in the form of a life insurance benefit, is the fact that the US IRS grants it a very favorable tax treatment to these proceeds. Let me start off by admitting that I am not a tax professional. That is why I consulted the IRS website to get the full story on how death benefits would impact a beneficiary when they need to fill out their tax forms.

According to IRS.gov, the website that is run by the US Internal Revenue Service, you are not liable for insurance death benefits as a taxable expense, unless you purchased that benefit for money. This is true, even if those benefits were paid out by some type of accident or health insurance plan. You may, however, be liable for any growth to that death benefit.

Life Settlement Investors Must Pay Taxes

How do you purchase these benefits for money? These days, there is a transaction called a life settlement. In these, an investor actually purchase life insurance policies as an investment. The insured person gets a cash settlement which is somewhat lower than the actual death benefit. The investor becomes the new owner and beneficiary, and they hope to profit when they finally collect the proceeds.

So this is the exception, but otherwise, the IRS declare that life insurance proceeds are a tax free benefit. Again, that is why life policies are popular ways to leave an estate. It relieves the heirs, in many cases, of having to declare the money they get on their taxes. Check Internet #1 - Are Life Insurance Benefits Taxed @ http://insurancecure01.webs.com and solve your problems right now!

Proceeds Are Tax Free, But Gains Are Not

Keep in mind, that the tax advantages only apply to the actual death benefit. If any gains are made on the money, these can be taxed. It is common for life insurance benefits to be paid out over time, and for the cash in the account to build up at a specified interest or market index rate. Another example might be a cash value policy that has actually accumulated a greater cash value than the death benefit. This growth may very well be taxable. So the tax advantage is limited to the actual amount of the death benefit.

Again, if you are unclear about the distinction, it is time to consult with a qualified tax professional.

Uses For Life Insurance Policies with Tax Free Death Benefits

People have a variety of uses for these policies because they provide a simple and tax advantaged way to leave an estate.

   * Leave money to children or grandchildren. Because of the reduced tax liability, this may be one of the best solutions for passing an estate on to the next generation.
   * Leave money to a favorite charity.
   * Compensate some heirs because a business will be passed on to only one heir. If Grandpa is only going to pass his bakery on to one son who has trained to be a baker, he can leave money to his two daughters to compensate them. This can be a fair way to avoid family disputes.
   * Compensate a family if a business partner will continue to own a business. Some partnerships purchase life insurance so that the surviving partner can continue the business. Meanwhile, the other partner's family can get compensated or bought out with the proceeds from a life insurance policy.

Would You Like To Shop For Life Insurance?

If you think that a policy would help you plan for the future, it may be time to compare quotes and policies that meet your needs. Check Internet #1 - Are Life Insurance Benefits Taxed @ http://insurancecure01.webs.com and solve your problems right now!

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