Friday, December 07, 2012

Is Life Insurance going over the (Fiscal) Cliff? [UPDATED]


"The potential elimination of many tax preferences currently afforded life insurance is one facet of today’s fiscal cliff discussions ... proposals include provisions that could result in the imposition of taxes and elimination of deductions for both individual and corporate-owned life insurance policies"

More ominously, the two primary tax benefits of life insurance - tax-advantaged build-up of cash values and tax-free death claims - are also under fire. This makes sense: why should responsible people gain an advantage over those who plan to fail fail to plan?

Gee, I'm just full of good news today, aren't I?

ADDENDUM: Jeff Root has an interesting post about life insurance and buy-sell arrangements, how they're used and how they work. It occurs to me that taxing the death death benefit in those situations could create a triple-whammy: the premiums aren't deductible, the death benefit would be taxable, and there may well be taxes on the transaction (sale of the business interest) as well.

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