Life insurance policies can come with tax implications under certain circumstances. Whole and universal life insurance policies accumulate cash value, which, if withdrawn, may be taxed if the amount exceeds the premiums paid. MassMutual and Pacific Life are two insurers that offer these types of policies, with additional benefits like a cash value enhancement rider from Pacific Life. If a life insurance policy is surrendered, the cash surrender value is received, which can also be taxed. Employer-paid life insurance policies may lead to taxable income, and installment payments from life insurance may incur taxes on the interest. The death benefit paid to an estate could be subject to federal estate tax, which varies based on the value of the estate. The article also provides tips on how to utilize life insurance proceeds, such as paying off debt, establishing an emergency fund, or saving for retirement, highlighting financial tools and accounts that can help manage these funds effectively.
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