Muddy Waters? - Tax Planning and Life Insurance

The IRS and your Life Insurance

The first thing to consider about life insurance policies and taxes, is that for federal tax purposes, to be considered a life insurance contract AND qualify for favorable tax treatment it must do two things: 1) meet state law requirements and 2) satisfy the IRS’s statutory definitions of what a life insurance policy is.

The IRS looks at several elements of the policy to verify that a life insurance policy is NOT really an investment vehicle; for example; the type of policy, date of issue, amount of the death benefit, and the premiums paid.