Cashing out life insurance?
My mother recently passed and my father told me before he goes he wants to straighten out all his finances and informed me that he will give me the option of cashing in life insurance in my name or just hand it over to me. These are fully paid maybe 20 years ago. Death benefits of 10,000 and 25,000.
Some people say I pay tax on it, others say it was all paid with after tax money. Any help? I don’t need the ins. I have plenty of my own.
First of all, when you “cash out” a policy like that, you do NOT get the ‘death benefit’, you get the “cash value”, which is usually a fraction of the death benefit.
With a policy like that, only the GAIN is Taxable. That’s the portion OVER the amount paid in, plus any dividends (interest) which have ALSO been paying the premiums, is taxable. So if he paid $1,000 a year, for 25 years, he’s paid $25,000. If you get MORE than $25,000 out of the policy, you MIGHT have to pay taxes . . . but it’s NOT very common to have a tax amount due, as MOST of the time, you pay more in than you get out.
He needs to call the insurance company, and ask what the “surrender value” is.