Tax Treatment of Life Insurance Proceeds discusses the income tax treatment of death benefits and living proceeds from life insurance contracts. It considers the statutory definition of life insurance contained in Internal Revenue Code §7702 and the tax consequences of a life insurance contract’s failure to meet the definition. It also addresses the general rules governing the taxation of life insurance policy death benefit proceeds and examines the consequences of: a transfer for value; inclusion of a policy in a qualified plan; corporate-owned life insurance; and the payment of death benefits under a settlement option. The course also discusses the tax treatment of proceeds received under viatical settlements and accelerated death benefits.
In addition, it considers the modified endowment contract (MEC) rules, the tax consequences of a life insurance policy’s MEC status, the tax treatment of policy loans, withdrawals and surrenders and the tax treatment of proceeds received under life settlements.
When you have completed this course, you should be able to:
Calculate the gain to be recognized as a result of various life insurance policy transactions, including – o withdrawals, o loans, o surrenders, and o payment of death benefits;
Identify the changes to the customary tax treatment of life insurance policy living proceeds resulting from the policy being deemed a modified endowment contract (MEC);
Calculate the reportable gain upon receipt of life insurance policy death benefits when the life insurance policy – o has been transferred for a valuable consideration, or o was included in a qualified plan;
Recognize the types of life insurance exchanges that are tax-free under IRC §1035;
Define the terms “terminally-ill” and “chronically-ill” as used in the Health Insurance Portability and Accountability Act; and
Identify the income tax treatment of accelerated death benefits, viatical settlements and life settlements.
Paul J. Winn, CLU, ChFC has over thirty years experience in the life insurance and investment industry. As well as fifteen years as a financial writer, editor, and trainer. Paul has worked for Mutual Life Insurance Company of New York, Security Mutual Life Insurance Company, Principal Financial Group, and the Maryland Financial Corporation. Paul is a Published book author, writer & editor of major mutual life insurance company’s agent-training “university”, and the creator of more than 100 training courses in computer-based training, print and scripted classroom formats.
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