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Cashing In A Life Insurance Policy And Capital Gains Tax
| If you are cashing in a life insurance policy, you should be careful because you will have to pay capital gains tax on any amount you receive above what you paid in the premiums. However, the good news is that most life insurance policies have so many front-end fees that it usually takes around 12 years to 15 years before you actually get cash that is higher than paid premiums. |
With it comes to a universal or variable universal life insurance, you can cash in an amount equivalent to the premiums you have paid without incurring capital gains tax. Where whole-life life insurance is concerned, you can cash in the entire amount without having worrying about capital gains tax because you will be taxed just on the earnings and not on the entire cash value of your insurance.
Supposing you think that the capital gains tax will be too high, you have another option of cashing in your life insurance policy. You can borrow against most of your cash value and if you die before repaying the loan, the amount will be offset against the benefit. This way you get your money and there are no taxes to be paid. However, there is a drawback to this method of cashing in as you will be required to pay interest on the borrowed amount in addition to the insurance premium. There are some insurance policies that allow insured to pay interest and premiums with the remaining cash value. This will obviously do away with you having to spend money from your pocket.
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Cashing In A Life Insurance Policy And Capital Gains Tax
