Frequently Asked Questions
I've heard that life insurance is the most tax privileged investment in the United States. What are these privileges?
Taxation of Life Insurance in the United States
Premiums paid by the policy owner are normally not deductible for federal and state income tax purposes.
Proceeds paid by the insurer upon death of the insured are not includable in taxable income for federal and state income tax purposes; however, in the case of no beneficiary, the proceeds may be included in the estate of the deceased and, therefore, subject to federal and state estate and inheritance tax.
Cash value increases within the policy are not subject to income taxes unless certain events occur. For this reason, insurance policies can be a legal and legitimate tax shelter wherein savings can increase without taxation until the owner withdraws the money from the policy.
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