Do you have to pay taxes on life insurance money? These days, most people are used to paying taxes on just about everything. People get taxed on their income, profits from the sale of property, and possibly even compensation for being out of work. However, cheap life insurance is usually different. This is an important life insurance question that we have to answer all the time.
Death Benefits From Insurance Policies Are Not Usually Taxed
The money from a life insurance policy, just like the proceeds from auto or homeowners insurance policies, are considered reimbursements. Since they are not income, they are not considered a taxable event by the IRS. If the IRS wanted to tax people for the proceeds from insurance policies, they would also have to find a way to let us deduct the losses that caused the insurer to pay benefits.
That would be too complicated and unnecessary, so any money you get from the death benefit of a life insurance policy is not usually taxed. The same is also true of death benefits from other types of coverage like accident and disability policies.
Do You Have To Pay Taxes On Life Insurance Money If You Sell The Policy?
Asking do you have to pay taxes on life insurance money is a different question than asking if life life insurance death benefits are usually taxable. Recipients of life insurance benefits may occasionally have to pay taxes. These instances are actually rather rare, but these are some examples of people who could have to pay taxes:
In other words, simply receiving a payment because you are the beneficiary to a life insurance policy is rarely a taxable event. It is considered a reimbursement for a loss, and it is not considered income. Life insurance could be taxable if gains made on a cash value are used or the policy gets sold. A tax attorney, accountant, or even the insurer could give you the right advice for your own particular situation.
Life insurance can be a great tool to transfer an estate, pass on a business, and protect your family. We even offer some great life insurance for seniors. So if you’re shopping for affordable life insurance, we’d love to help! You can shop and compare life policy quotes using our online quote system. Simply enter in your zip-code and we’ll get to work finding you affordable quotes from some of the top insurance companies in your area. If you have any questions, feel free to call one of our licensed agents. They’ll be happy to answer any questions you may have.