It isn't a lot of money, about $50,000. Has to last her the rest of her life. Can anyone help. Thanks... The spouse died of complications of surgery, not an accident. She thinks the doctor messed up, but couldn't prove it. He died 10 days after surgery, it was colon surgery and he went into Septic Shock. It was all very quick after that... If she is the direct beneficiary, there's no income tax. If his estate is the beneficiary and she inherits the estate, it becomes part of the estate, and subject to any estate taxes. Yes, I believe she does and it is looked at as income. Pretty sad, you even have to pay into the coffers when someone passes. I am sorry for your friends loss. No, IF the policy was owned by her husband and named her as the benificiary. Life insurance passes tax free out of the estate. This FACT does not make life insurance anything fancy as for as owning it is concerned.
NOW! Hhere is the sad part. Chances are the policy is a Cash Value or whole life policy and as you can now see, $50,000 ain't very much for anyone to have to make a go of it with kids and all.
Had he (the deceased) been insured with term life, there would have been MUCH MORE benifit available to her for the same amount of premium paid, posiibility as much as 3-5 times more money.
Don't get caught with the WRONG kind of coverage. Life insurance IS NOT a means of a savings plan, it is for death benifit ONLY. Hope everyone learns a valuable lesson here. If that is accident insurance policy have to report to income tax dept,but not means have to pay tax ,depend on his income, life insurance not need to pay any tax,and debtor can't claim on it. That depends on what type of life insurance policy her husband bought:
1. TERM LIFE, much cheaper than permanent insurance, is insurance protection for a short-term, specified period of time, ranging from 1, 10, 15, 20, or 30 years, or up to a certain age. However, term insurance does not produce a cash value, but many policies do allow for extension of the term or conversion to a permanent or flexible premium adjustable life policy (universal life). The death benefit under this policy is INCOME-TAX FREE.
2. WHOLE LIFE provides long-term, permenant insurance protection. Whole life policies utilize life insurance tax advantages:
----life insurance death benefits are generally income tax-free
----guaranteed death benefits (guarantee based on the company's paying ability) paid to a named beneficiary other than the insured's estate may avoid the cost and delay of probate
----the transfer of death benefits is free of estate taxes
----cash values grow inside the life insurance policy on a TAX-DEFERRED basis
----usually, cash values may be taken through loans on a tax-favored basis (tax-favored access to accumulation values is protected under IRS regulation. Taxation MAY OCCUR if the policy lapses or is SURRENDERED, i.e. taken out. Loans also reduce the death benefit and cash surrender value.)
3. UNIVERSAL LIFE (or FLEXIBLE ADJUSTABLE PREMIUM LIFE) provides flexible life insurance protection plus helps build money for the future, TAX-DEFERRED, of course. It relies on the cash value of the policy to account for adjustments in premium amounts and payments. Cash value is accumulated through premium payments and interest (minus mortality charges and expense charges). The policy's cash value earns interest at a rate declared by the insurance company, but is guaranteed to never fall below a certain rate. The policy owner can make the cash value grow by making additional payments, or later borrow against it.
4. VARIABLE UNIVERSAL LIFE, regulated as a Security Investment, incorporates flexible premium payments, an adjustable death benefit and death benefit options. Policyowners can select from a number of underlying investment options and allocate premium payments toward these subaccounts. The cash value of the policy is then dependent on the performance of the subaccounts selected. Since it is a form of investment account, there is NO GUARANTEE of cash value return. And the cash value is tax-deferred as well. The good thing is, regardless of account performance, the cash value does not decrease as long as the cash value is still sufficient to cover the cost of the policy. The DEATH PROCEEDS are passed to the beneficiary INCOME TAX FREE. Although the policy owner may also borrow from this type of account, withdrawals and surrenders may trigger surrender charges and tax obligations, and they may cause you to receive less than the original premium amount. The money passes to the named beneficiary income tax free.
For wealthy folks, there is a concern that the policy is included in the estate of the insured for the purposes of estate tax evaluation, but for the large majority of people, this is not a problem. If it is, they should seek the help of a lawyer.
People who take a question like this as an excuse to editorialize about what type of insurance people should buy have no class. Please leave these comments to the living so those of us who have losses can grieve without any added strife. I am sorry to hear about your friend. I hope she is doing well.
The life insurance proceeds are usually paid to the beneficiary of a life insurance policy free from any federal income tax - if she was the direct beneficiary.
If however, the estate was named on the life insurance policy as the beneficiary, the proceeds are paid to the estate, and their may be tax implications.
When a person insured by a life insurance policy dies during the term of the policy the proceeds are paid to the beneficiary or beneficiaries.
Life insurance death benefit proceeds are usually not subject to state and federal income taxation. But, if there is no beneficiary, the death benefit proceeds of the life insurance policy may be included in the estate of the deceased. Then, it may be subject to state, federal and inheritance taxes.
Also, the proceeds may be subject to federal estate taxation.
If you own all or part of the life insurance policy at the time of your death, the proceeds may be included in your gross estate for federal estate tax purposes.
Also, federal gift taxes and state inheritance taxes may apply to life insurance policy proceeds under certain circumstances.
You may want to consult a tax advisor regarding your questions about any estate, income and gift taxes related to any life insurance policies you own or are considering buying.
Also, your insurance agent should be able to tell you if your life insurance policy benefits will be taxable.
Finally, different taxes may apply to the benefits paid by your life insurance policy if the death benefit is paid to the beneficiary in installments, instead of as a lump sum. The interest portion, if any, of each installment is usually treated as taxable to the beneficiary at ordinary income tax rates, while the remaining principal portion is tax-free.
I hope that helps! Best of luck to you. I couldn't careless whether it was that husband passing away or you. Nothing in life is free, and keep that in mind. And I'd advise her not to even bother, honestly, how long you think she'll last? Maybe a couple of months if she thinks it through. Then she'll go to prostitution just as her mom was before she was born. And eventually she'll die from STDs, you don't get it do you. Life never works in your advantage. |
