Taxable Life Insurance Policies

Insurance policies, such as group life coverage, which are paid partially or in total by companies, employers or organizations, can be considered for taxation. Group life insurance policies that are valued in excess of $50,000 will become taxable income.

Non-Taxable Life Insurance Policies

Benefits from individually owned policies are not subject to taxation. Funds in a cash value account, which accompany permanent life insurance policies such as universal life and whole life, will also be received tax free by the beneficiary.

Estate Taxes

Insurance plan benefits can be taxed as part of the policy owner's estate if their possessions are valued over the federal estate exemption limit. As of 2009, estates will be taxed at 45 percent if the value is over $3.5 million according to the IRS.

Misconceptions

Estate taxes can be avoided on a life insurance policy. Policy owners would have to designate the ownership of the insurance plan to another person. Also the beneficiary of the insurance policy cannot be their estate.

Warning

To avoid estate inclusion of the insurance policy, the transaction of assigning ownership and/or changing beneficiary information must be completed three years before the death of the policy owner.

Source:

New York Life: The Tax Advantages of Cash Value Life Insurance

AccuLifeInsurance.com: Advantages of Whole Life Insurance Explained

Payroll Taxes.com: Calculating the Value of Group Term Life Insurance

More Information:

IRS.gov: AccuLifeInsurance.com