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Term Insurance & Disability Insurance taxation?

Posted: Sun May 22, 2011 8:24 pm
by dpusa
All

My wife and I are in the process of getting quotes for Term Insurance & Disability Insurance (through Zander or Term4Sale), however what is the taxation on both?

Eg, if we each have a $1mn term insurance and one of us dies does the $1mn get taxed and also what if we both die, would our children pay taxeson the $2mn.

Same with disability insurance,if we get enough to replace $1000 per month for example how much is taxed? Is it based on our overall monthly income?

Thanks in advance

Posted: Sun May 22, 2011 8:45 pm
by sscritic
In general, if you own the life insurance policy, the proceeds are part of your estate for estate tax purposes. The proceeds are not taxable income to the beneficiary.
The value of the gross estate shall include the value of all property—
(1) Receivable by the executor
To the extent of the amount receivable by the executor as insurance under policies on the life of the decedent.

(2) Receivable by other beneficiaries
To the extent of the amount receivable by all other beneficiaries as insurance under policies on the life of the decedent with respect to which the decedent possessed at his death any of the incidents of ownership, exercisable either alone or in conjunction with any other person.
http://www.law.cornell.edu/uscode/26/us ... -000-.html
Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. However, interest income received as a result of life insurance proceeds may be taxable.
http://www.irs.gov/publications/p525/ar ... 1000229373

Posted: Sun May 22, 2011 8:51 pm
by dpusa
Own? Do you mean if we buy my policy and list my partner ad the beneficiary?

Sorry, I am being dense!!!

Posted: Sun May 22, 2011 9:01 pm
by Don Robins
Larry Auton,

Who dat? I don't want to express opinions for him either.

Posted: Sun May 22, 2011 11:33 pm
by BruDude
If you are paying for the policies with your own after-tax money, the benefits are income-tax free. Estate tax calculation is a separate issue.

Posted: Mon May 23, 2011 7:30 am
by dpusa
BruDude wrote:If you are paying for the policies with your own after-tax money, the benefits are income-tax free. Estate tax calculation is a separate issue.
Thanks... any advice on estate tax calculations or thresholds?

Posted: Mon May 23, 2011 7:44 am
by BruDude
dpusa wrote:
BruDude wrote:If you are paying for the policies with your own after-tax money, the benefits are income-tax free. Estate tax calculation is a separate issue.
Thanks... any advice on estate tax calculations or thresholds?
Currently $5M per person, $10M combined for husband/wife. Who knows what they'll be in the future....my guess is lower than those amounts.

Posted: Mon May 23, 2011 8:06 am
by dpusa
BruDude wrote:
dpusa wrote:
BruDude wrote:If you are paying for the policies with your own after-tax money, the benefits are income-tax free. Estate tax calculation is a separate issue.
Thanks... any advice on estate tax calculations or thresholds?
Currently $5M per person, $10M combined for husband/wife. Who knows what they'll be in the future....my guess is lower than those amounts.
THanks BruDude, now if both my wife and I passed, would that mean our kids wouild not pay estate tax on $10M - or is that $5M between spouses only?

Posted: Wed May 25, 2011 1:48 pm
by grberry
dpusa wrote:
BruDude wrote:
dpusa wrote:
BruDude wrote:If you are paying for the policies with your own after-tax money, the benefits are income-tax free. Estate tax calculation is a separate issue.
Thanks... any advice on estate tax calculations or thresholds?
Currently $5M per person, $10M combined for husband/wife. Who knows what they'll be in the future....my guess is lower than those amounts.
THanks BruDude, now if both my wife and I passed, would that mean our kids wouild not pay estate tax on $10M - or is that $5M between spouses only?
If your potential estate gets north of $1M, including house, retirement plans, all insurance, et cetera, then you should seek state specific advice. Federal and state limits and amounts for estate taxes are generally different following the federal changes in 2001.