Tax TreatmentQuestion 712 of 716
Life insurance proceeds may be pulled into the insured's taxable estate if, at death, the insured held:
a.a term policy, since term coverage is always estate-includible while permanent coverage never is
b.a fully paid-up policy, because completed premium payments shift the estate liability to the insurer
c.incidents of ownership, such as the right to change the beneficiary or borrow against the policy
d.only a beneficiary designation, which standing alone pulls the proceeds back into the taxable estate
Explanation
If the insured retained incidents of ownership, control such as changing beneficiaries or borrowing, the proceeds are included in the taxable estate. The policy type alone (term or paid-up) does not decide this.
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Related questions on this topic
- When death proceeds are left with the insurer and paid to the beneficiary in installments, the portion that is taxable is the:
- Premiums paid for personal life insurance are:
- The cash value inside a permanent life insurance policy grows:
- Required minimum distributions (RMDs) generally force the owner of a traditional qualified plan to begin taking taxable distributions:
- Premiums a business pays for key person life insurance are:
- In an executive bonus (Section 162) plan, the employer:
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PrepPass team · Verified against California Life & Health Insurance License Exam · How we review
Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)