Does My Beneficiary Have To Pay Taxes On My Life Insurance Policy When I Die?

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Hello Hank, I see you have a Universal Life Insurance policy also. Do you know if it is taxed when I “expire”? Barney from North Carolina

Hey Barney, I actually DO know the answer to that. I checked with my accountant to be 100% sure and he agreed with me that your beneficiary will NOT (99.999% of the time*) have to pay taxes on it. This is the one time I don’t mind having my Universal Life Insurance through Hartford Mutual. I slashed the “investment” piece of the policy and am only paying for the insurance side of it now. Don’t mix investing with insuring. They mix similar to oil and water.

* – The time this doesn’t apply to you is very rare, but CAN happen if you die at the same time your beneficiary and 2nd beneficiary also die. So it is very rare, but possible.

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  • Really good question. But what’s the answer? Does my beneficiary have to pay?

  • CriticalInsurance- maybe I’m reading it wrong, but it says in the quote there: “…he agreed with me that your beneficiary will NOT (99.999% of the time*) have to pay taxes on it.”

    is that not what you’re looking for?

  • No income taxes to be paid on life insurance proceeds, although will be includable in estate for estate taxation purposes without some sort of legal structure in place like life insurance trust (ILIT). Hope this helps.

  • Yep…no income tax, but you do have to account for estate taxation. And yes, avoid the “investment” side of the policy. That’s a whole life policy instead of a plain term life policy, which mixes two different thoughts, and isn’t usually a good idea.

  • Irishklh

    I run a small business. We gross about $700,000 per year. I do my accounting on Quicken. At the end of the year I print off all the reports including a profit and loss statement. He is not a CPA. He is a general accountant. I get a bill for almost $2,000. I questioned him on it and he told me he charges $100 per hour. Does he really spend 20 hours doing this? The majority of the money goes out to about 8 or 9 independent contractors, so the huge majority is eaten up by 1099s. Does it really take 20 hours?

    Thank you.