Rick Case Insurance Agency Blog
Implications of tax are crucial considerations when purchasing a life insurance premium. The Internal Revenue Service (IRS) may impose various tax rules on several plans with distinctions that are sometimes arbitrary. The guide below is to expound on tax implications regarding life insurance.
Paying Taxes on Life Insurance Premiums
Unlike purchasing a new television or vehicle, life insurance does not need sales tax payment. It means that the policyholder’s quoted premium amount when they attain coverage is the only amount they pay, without any additional percentage amount for covering taxes. However, there are still particular situations in which a policyholder must pay taxes on their purchased insurance premium.
Employer-Paid Life Insurance
When the employer provides life insurance to their employees as a part of their general compensation plan, the employee is required to pay taxes since the IRS considers the provided premium an income. However, the charges are only applicable when the employer spends more than $50,000 on coverages for life insurance. Despite the case, the cost of the premium for the initial $50,00 is exempted from taxation.
Prepaid Life Insurance
There are life insurance plans that allow a policyholder to pay a large sum in the open. The amount then gets applied to the premiums of the policy throughout its duration. The payment of the lump-sum also increases in value due to interest. Because the IRS considers the money’s growth an interest income, it has the possibility of being subjected to taxation when the policyholder applies it for a premium payment, or when they withdraw any amount of the money they earned.
Cash Value Plans
In addition to offering fixed death benefits to the insured, several whole life insurance plans also collect cash value when policyholders use their premium dollars to pay into the premium. Once they do, a portion of the paid premium dollars arrives in a fund that amasses interest as time passes. For plans that have been running for several years, it’s typical for the cash value’s amount to surpass the policyholder’s premium payment. This is why plenty of people use this life insurance type as an investment while also gaining the significant benefits of protection it offers their families in case of an untimely death.
No matter which plans you invest in, there will always be instances where paying for tax is necessary. However, you can still choose premiums that provide more benefits in a compromise of the amount of tax you also pay.
At Rick Case Insurance Agency, we do our best in making sure that our clients are well-protected with affordable and comprehensive policies. We make sure to go the extra mile to help you with your needs. To learn more about how we can help you, please contact our agency at (405) 722-5556 or Click Here to request a free quote.