For people seeking a life insurance policy one of the main things that comes up in their mind is what is the life insurance tax. The easy answer is that the money received from a life insurance policy is almost always going to be free from taxes.

Life insurance is one of those ways that both families and business can continue to move on and pay the bills should the insured person die and in the business community especially, die prematurely. The money can be used for things like paying off debt, as a means of money for a person’s loved ones, a college education for their children, etc…

If it’s a company the money can be used in order to keep the company solvent should the owner die and also can be used should the company loose a key man employee and have to take the time to find a replacement.

Some additional information is as follows:

• If you have a policy other than a term life policy the cash value of the policy that grows over the years grows tax free as well
• Even though life insurance proceeds will go with part of the insured’s estate should the insured own the policy himself/herself and are subject to an estate tax; however, there are many states that do not include it in the estate for taxation purposes. The best way to make sure you avoid it is  to make sure there is proper planning through the policies ownership
• Loans taken out on a life insurance policy are normally not going to be taxable. The exception to the rule is with the modified endowment contract. This is something that occurs when the premiums on the policy exceed an sum that is specified within the IRS code

Considerations

If you cash in the policy the amount that has accumulated above the payment amount is going to be taxable. Any amount that was taken out as a policy loan before the policy was cashed in will be included in the taxable amount. With that exception with proper planning you can usually avoid any tax on the life insurance benefits which is an immense help if you have found yourself in a bind and need the life insurance monies to get out of it.