Term
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Definition
*Any Cash Value Increases in the policy and can be borrowed by the policy owner.
Cash Value increases grow tax deferred.
* Upon surrender or endowement any cash is taxable as ordinary income.
*Upon death the face amount is paid, and there is no cash value.
*Death Benefits generally are paid to the beneficary income tax free.
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Term
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Definition
*Returns of unused premiums.
*Not considered for income tax purposes
*when the divident is left with an insurer it is subject to taxation as ordinary income each year the interest is earned. |
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Term
| Policy Loans (not income taxable) |
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Definition
*Owner may borrow against policy's cash value.
*Money borrowed from the cash value is not income taxable.
*The insurance company charges interest on outstanding policy loans. |
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Term
| Surrenders (Surrender Value- past premium=amount taxable) |
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Definition
*when a owner surrenders a policy for cash value some of the cash may be taxed.
*When the owner surrender value from a universal life policy, both the cash value and death benefit are reduced by the amount of the surrender. |
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Term
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Definition
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Term
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Definition
| Not income taxable(except for interest) |
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Term
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Definition
| Not taxable (as long as policy is in force) |
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Term
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Definition
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Term
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Definition
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Term
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Definition
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Term
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Definition
| Death Benefit spread evenly over income period (averaged). Interest payments in excess of death benefit portion are taxable. |
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Term
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Definition
If the insured owns the policy it will be included for estate tax purposes.
If the policy is given away(possibly a trust) and the insured dies within three years of the gift, the death benefit will be included. |
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Term
| Modified Endowment Contract |
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Definition
| If the premium exceeds the seven-pay test, the policy becomes a MEC. With MEC surrenders come out on a Last in First Out basis and there is a 10% pentalty for the surrenders prior to the age 59 and half. With LIFO,if there is mroe cash than basis, the first dallors out will be taxable until the non-taxable basis is reached. |
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