Imputed income is the recognization of a benefit received for which the recipient did not pay. When it comes to life insurance, imputed income occurs when someone receives coverage through his/her employer where the individual does not pay for the coverage. Internal Revenue Code 61 stipulates most of the rules for imputed income. Imputed income …
What is a Modified Endowment Contract? A Modified Endowment Contract (MEC) is a life insurance policy that fails the 7-pay test established by the Tax and Miscellaneous Revenue Act of 1988 (TAMRA). Failure of this test reclassified the life insurance policy, which comes with several changes to the taxation of the insurance contract. It’s important …
A partial surrender of a life insurance policy releases some of its cash value while keeping the policy in force. This means the policy owner can remove some of the cash value in his/her policy without having to cancel the entire policy. Life insurance policy owners most commonly make use of this feature either when …
1099-R reports distributions from: Profit-sharing/retirement plans Life Insurance/Annuity Contracts IRA’s Disability Plans It’s important to understand that 1099-R reports distributions regardless of taxability. This means it’s possible to receive a 1099-R even when no taxes are due on the distribution. For example, if you take out a $50,000 loan against a universal life insurance policy …
The interpolated terminal reserve is a mid policy year calculation on a life insurance policy’s reserve used most often to determine the market value of a life insurance policy. The value of the interpolated terminal reserve is something close to the policy’s cash value, but the two are not the same. Because life insurance policies …
Life insurance dividends benefit from special tax treatment that make them largely non-taxable. This being said, there are some circumstances that can make the dividends paid on life insurance policies taxable. Today we’ll walk you through both the non-taxable and taxable circumstances most commonly found for individuals receiving dividends on their life insurance policies. Refund …
