How is the sale of a life insurance policy taxed? - Life Settlements with Settlement Benefits Association

Often, the biggest hurdle in pursuing the sale of a life insurance policy revolves around the potential taxation of any proceeds from the transaction. To make a fair and accurate analysis of any life settlement options, policy owners and insureds must understand how the transaction can impact their bottom line. Furthermore, like most things related to the tax code, the answer is not always simple.

Using our tax estimator, you will gather the important details and produce a pdf document suitable for sharing with your tax professional. Get started with this free essential resource below:
Name*
First Last
Phone*
Email*
SalesRep

How is your health?*
Terminally Ill
Chronically Ill
Neither
The Tax Definition of Terminally Ill
For tax purposes, a “terminally ill” individual is defined as an individual who has been certified by a physician as having an illness or physical condition which can reasonably be expected to result in death within twenty-four months from the date of certification.

For this purpose, the term “physician” has the meaning given to that term by the Federal Social Security Act- i.e. a doctor of medicine (M.D.) or osteopathy (D.O.).

The Tax Definition of Chronically Ill
For tax purposes, a “chronically ill” individual is defined as an individual who has been certified by a licensed health care practitioner within the preceding twelve-month period as:

A - unable to perform at least two “activities of daily living” without substantial assistance for at least ninety days due to a loss of functional capacity; or

B - requiring substantial supervision due to “severe cognitive impairment” (e.g., memory loss, disorientation).

For this purpose, the term “licensed health care practitioner” includes physicians, registered professional nurses, and licensed social workers. Thus, unlike the “terminally ill” certification, which can only come from a licensed physician, a “chronically ill” certification can come from a physician or certain types of non-physician health care providers.
Does the insured also own the policy?*
Yes
No
Are the proceeds to be used to cover expenses for qualified long term care not otherwise compensated for by insurance?*
Yes
No

Face Value of Policy*
Proceeds From The Policy Sale*
Total Premiums Paid*
Do not include any premiums paid prior to any policy conversions.
Total Withdrawals or Dividends Taken From The Policy*
Cash Surrender Value*

Policy Loan*
Income Tax Rate*
Add any applicable state and local income tax rates in addition to the federal rate
Capital Gains Tax Rate*

Life Settlement Basis
Life Settlement Gain
Ordinary Income Portion Calculation
Ordinary Income Portion Validation
Ordinary Income Tax when zero
Ordinary Income Tax when not zero
Taxable Capital Gain Income When There Is Ordinary Income
Taxable Capital Gain Income When There Is NOT Ordinary Income
Capital Gains Tax When THere is Ordinary Income
Capital Gains Tax When THere is NOT Ordinary Income
Total Tax Section
Total Tax when no taxable gain
Total Tax when no ordinary income
Total Tax when no ordinary income
Total Tax when there is ordinary income
Total Tax when there is ordinary income
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Please remember, we can't do anything about your taxes, but we can help you maximize the value of your life insurance policy. No matter what part of your appraisal process you are in, call us to make sure you are getting the best offers.