Tax Treatment of Life Insurance ProceedsCode: 25-TAXINS

46 pages
Course description and objectives:

In this course we will look at the tax treatment given proceeds from life insurance policies and will consider the taxation of death benefits, cash value withdrawals, loans and surrenders. In addition, we will examine the differences in tax treatment caused by a life insurance policy’s:

• Failure to meet the statutory definition of life insurance;
  
• Being deemed a modified endowment contract;
  
• Transfer of ownership to another person for a valuable consideration;
  
• Sale in a viatical or life settlement transaction;
  
• Ownership by an employer; and
  
• Use in a qualified retirement plan.
  

Learning Objectives
Upon completion of this course, you should be able to:

• Calculate the gain to be recognized as a result of various life insurance policy
  transactions, including –
  • withdrawals,
  • loans
  • surrrenders, and
  • payment of death benefits
• Identify the changes to the customary tax treatment of life insurance policy living
  proceeds resulting from the policy being deemed a modified endowment contract
  (MEC);
• Calculate the reportable gain upon receipt of life insurance policy death benefits when
  the life insurance policy –
  • has been transferred for a valuable consideration, or
  • was included in a qualified plan;
• Recognize the types of life insurance exchanges that are tax-free under IRC §1035;
• Define the terms “terminally-ill” and “chronically-ill” as used in the Health Insurance
  Portability and Accountability Act; and
• Identify the income tax treatment of accelerated death benefits, viatical settlements
  and life settlements.

Category: Taxation

CPE credit: 3 Hours

Program Level: Update

Prerequisites: None

Advance Preparation: None

Exam expiration date: Participants must submit exams for grading within one year from the date of purchase