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Last Updated on June 8, 2022 by coffeepo
Have you ever wondered how life insurance works when it comes to taxes? Do you need to pay taxes on the policy itself, and if so, how much? And what happens when you die and your beneficiaries receive the payout? Here’s a breakdown of what to expect when it comes to taxes and life insurance.
When it comes to the taxes you pay on your life insurance policy, there are two main types: premium taxes and death benefits.
Premium taxes are the taxes you pay on your life insurance premiums. These are generally paid by the policyholder and are typically a small percentage of the total premium (usually less than 1%). Death benefits, on the other hand, are the proceeds paid out to your beneficiaries upon your death. These benefits are generally tax-free.
So, in general, you will not have to pay taxes on your life insurance policy unless you cash it in early or borrow against it. And even if you do have to pay taxes on the policy, they will likely be much less than the taxes you would pay on other types of investments.
Final Thoughts
It’s always best to speak with a tax advisor to determine exactly how life insurance will impact your taxes. But in general, life insurance is a very tax-efficient way to save for your family’s future.
