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  • What is a Life Settlement?
    • Life Settlements allow you to eliminate expensive premium payments and receive a lump sum of cash.
      • What is a Life Settlement?A Life Settlement is the sale of a life insurance policy on the secondary market.
      • Who Qualifies?People over the age of 70 or terminally ill
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How is the sale of a life insurance policy taxed?

How is the sale of a life insurance policy taxed?admin2019-11-15T12:14:09-04:00

  • 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:

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  • IMPORTANT DISCLAIMER
    This information is provided for informational purposes only; recipients of this information should not act or refrain from acting on the basis of any content included in this publication without seeking the appropriate professional advice on the particular facts and circumstances at issue from a competent tax professional licensed to practice in the recipient’s state.
  • 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.
  • Do not include any premiums paid prior to any policy conversions.
  • Add any applicable state and local income tax rates in addition to the federal rate
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  • Ok, great, we have everything we need to estimate your taxes. Simply click the button below and we will calculate your estimate and send it via email.

    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.

 

Life Settlement licensing requirements vary by state. In some states, life agents and other financial professionals must be licensed to source policies or receive commissions. Settlement Benefits Association is not licensed in all states. Some or all of the proceeds of a Life Settlement may be taxable under federal or state income tax laws. Advice from a professional tax advisor is recommended. This web site is not currently approved in the states of Oklahoma or Texas. This web site does not apply to variable life settlements. Receipt of proceeds may impact eligibility for government benefits and entitlements. Prior to sale, the insured should consider the continued need for coverage, impact to estate plans, availability of insurance, cost of comparable coverage or tax implications.
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