IRS Approved CPE Courses
2 hours
Certificate CTEC IRS NASBA

Tax Treatment of Life Insurance Proceeds

One of the important considerations in many financial transactions is the tax treatment the transaction is given. Often, the impact of taxation is a consideration in the purchase of life insurance every bit as much as it applies to stock purchases, bond purchases and the establishment of qualified retirement plans.

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:

When you have completed this course, you should be able to:

  • Explain the customary income tax treatment given to life insurance policy withdrawals, loans, surrender proceeds and death benefits;
  • Explain how a life insurance contract's failure to meet the statutory definition of life insurance changes its income tax treatment of death benefits and cash values;
  • Describe the changes to the tax treatment of life insurance policy living proceeds resulting from the policy being deemed a modified endowment contract;
  • Discuss the income tax treatment given to life insurance policy death benefits when the life insurance policy has been transferred for a valuable consideration;
  • Compare the tax treatment of life insurance death benefits under a policy included in a qualified plan with the tax treatment of nonqualified life insurance death benefits;
  • Identify the types of life insurance exchanges that are tax-free under IRC section 1035;
  • Define the terms "terminally-ill" and "chronically-ill" as used in the Health Insurance Portability and Accountability Act; and
  • Describe the income tax treatment of accelerated death benefits, viatical settlements and life settlements.

Field of Study: Tax
Course Level: Intermediate
Prerequisite: None
Delivery Method: QAS / Self Study
Expiration: In accordance with NASBA standards, access to this course will terminate one year from the date of purchase. Incomplete courses will no longer be accessible beyond the one year deadline.