The time has come to cash a life insurance payout. Will you have to pay taxes or is the entirety of the money yours? It’s a question many have posed to our insurance team serving Norman, OK. Here’s the answer.
Potential Taxes on a Life Insurance Payout
Life insurance beneficiaries typically do not pay taxes at the time of collecting death benefits. The caveat is that if the life insurance policy was set up for business needs as opposed to personal needs, there is the potential for taxes. Moreover, tax implications can arise if the premium is gifted for the purpose of insuring another individual. However, such events are relatively uncommon, meaning taxes shouldn’t be a concern.
The death benefit received and interest paid at the time of the claim have the potential to be taxable. Be sure to report such information on your federal tax return. Don’t forget about interest received, ensuring you are in full accordance with tax law.
Distinct tax rules might be applicable if benefits are paid in installments rather than a single lump sum payment. In general, most life insurance policies pay out in the form of a lump sum. The payment is made with a check.
What About Insurance Premiums?
Most life insurance premiums are paid for with post-tax dollars. Therefore, those premiums are not tax deductible. The logic in such premiums not being tax deductible is that they are viewed as a personal expense.
If you are still uncertain as to whether taxes are to be paid in the context of life insurance, be proactive. Reach out to the Steiner Insurance Group today for clarification. A life insurance professional will delve into instances when beneficiaries owe life insurance taxes due to accrued interest, and other unique situations for full transparency.
Contact the Steiner Insurance Group
Serving Norman, OK the Steiner Insurance Group makes insurance affordable and stress-free. If you are in the market for insurance, contact us today for a quote.
