As the old expression goes, the only certainties in life are death and taxes. When it comes to thinking about buying a new life insurance policy or updating an existing policy you have in place, don’t wait until it’s too late—literally. Take charge of your financial planning and tackle that life insurance task now to eliminate any worries in the future.
Let’s begin by exploring what exactly life insurance is, why you need the proper plans in place, and how taxation of life insurance will affect you and your policy.
What Is Life Insurance? Do You Really Need It?
No one looks forward to the day when life insurance needs to be used. Life insurance is, however, a way to plan and provide for your loved ones when you’re no longer around to do so. Dealing with the death of a loved one is difficult enough without the added burden of financial worries. The best thing to do is develop a solid plan to ease any stress or worry you or your loved ones may have.
First, it’s important to put your emotions aside and plan for the future. By doing so you prioritize your loved ones, as well as the fate of your assets and/or estate. Keep in mind that as long as you’re alive and able, your life insurance policy can be adjusted as your life circumstances or priorities change.
Proper preparations will ensure a sense of calm, peace, and control over a part of life that is sometimes unpredictable. In the event you were to experience a serious illness or a sudden, unexpected life event, you could have the confidence that you are prepared.
Life Insurance and Taxes
If you have a current life insurance policy or are thinking about purchasing a policy, you may be concerned with how life insurance and taxes affect one another. Have you been wondering if you need to pay taxes on life insurance benefits? If so, here’s what you need to know.
Typically, the beneficiary of a life insurance policy is not responsible for paying income taxes on the collected benefits.
However, according to irs.gov, any interest received from the policy needs to be reported by the beneficiary as “interest received” and is taxable money.
This also applies to property inherited by a beneficiary from a deceased person’s policy. Income tax isn’t usually required to be paid upon this type of inheritance.
An exception to the inheritance income tax exemption would be a situation in which taxable money is withdrawn from an inherited retirement account, such as an IRA or 401K retirement plan. In this case, the beneficiary would need to pay income tax on the money withdrawn from the account.
If you have more questions or concerns regarding life insurance planning, let us help. Alchemy Insurance Agency has a team of dedicated, skilled professionals ready to assist you every step of the way.
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