{"id":559,"date":"2018-03-30T21:56:02","date_gmt":"2018-03-30T21:56:02","guid":{"rendered":"https:\/\/blog.ladderlife.com\/?p=559"},"modified":"2021-05-19T19:29:39","modified_gmt":"2021-05-19T19:29:39","slug":"what-are-tax-benefits-term-life-insurance","status":"publish","type":"post","link":"https:\/\/ladderlife.com/blog\/2018\/03\/30\/what-are-tax-benefits-term-life-insurance\/","title":{"rendered":"What Are the Tax Benefits of Term Life Insurance?"},"content":{"rendered":"

Taxes are top of mind this time of year. So if you\u2019re considering life insurance, now is a great time to evaluate its tax benefits so you\u2019re aware of what you\u2019ll be dealing with down the line.<\/span><\/p>\n

For term life insurance customers, there\u2019s good news –  term life insurance payouts (also called \u201cdeath benefits\u201d) are generally not subject to federal income tax, according to Internal Revenue Code (IRC) <\/span>Section 101(a)<\/span><\/a>.  This is because these payouts are considered reimbursement of a loss, and not income . This means beneficiaries who receive payouts  from a policy can use all of the payout to pay off debt, offset lost income and maintain a family\u2019s current lifestyle. Also, term life insurance payouts are often <\/span>exempt from state inheritance taxes<\/span><\/a> as well. <\/span><\/p>\n

While any death claims for permanent life insurance products are also not subject to federal income tax, the tax advantages of the savings component, or \u201ccash value\u201d portion of permanent life insurance can vary. Care should be taken when evaluating the tax benefits of permanent life insurance as the rules can be complex,  so make sure you <\/span>know the facts<\/span><\/a>. <\/span><\/p>\n

Although an individual\u2019s term life insurance premiums are not tax deductible, when it comes to transferring wealth, estate, generation-skipping transfer tax and gift tax rules usually look kindly on \u201cdeath benefit\u201d payouts:<\/span><\/p>\n