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Are life insurance policies taxable?

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Are life insurance policies taxable?

Life Insurance has become such a big need in today’s world. Life is unpredictable and hence, we should get insurance so that our families and kids live a peaceful and stress-free life even after we are gone. Life insurance is a necessity and everybody should opt for it. Life insurance provides you with endless benefits that will benefit you and your family for life. When you are getting a life insurance done, it comes with a cost and you need to pay for it on a monthly, quarterly or yearly basis.

People come up with a lot of questions before opting for a life insurance. And one of them includes the famous question – Are life insurance policies taxable? According to historical records, life insurance policies have received good tax treatment. Since the whole complexity of separation of insurance and investment products has occurred, life insurance policies have become taxable. Since there are too many complex rules, it has become taxable. Taxes are levied when cash is handed over to the concerned person. During the term of the life insurance policy, there are occasions when the money changes hands. Let’s take the example of premiums which are paid along with after tax dollars. Technically, your beneficiaries will receive the death benefits without any tax after you are gone. But, the surrender or sale of the policy that you opted for in your lifetime will trigger a tax.

When it is about life insurance, you need to keep certain things in mind. Firstly, premiums should be paid via pre-tax dollars. Secondly, dividends are not at all taxable. Policy loans are certainly not taxable. In the case of life insurance benefits, it is usually not taxable. In case of death benefit when name of beneficiary is not specified then taxes are applied. Also, when a policy is being sold, then the benefits become taxable. When you are buying a policy, you should clearly ask the company or the insurer to educate you about the same as there are complex rules are regulations in the insurance field. And hence, an insurer will do the needful by telling you which policies are not taxable. Usually maturity proceeds of the life insurance are not taxable. Once the policies reach the maturity stage, then it will not be taxable whereas in pension plans where you are getting pension for life is certainly taxable. So, choose wisely and make the right decision when you buy a life insurance policy.

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