Life settlement taxation?

Life settlement taxation differs depending upon the type of policy and if there is a cash value component to the policy. For Term policies the total amount of premiums paid minus the cost of insurance (amount required to keep the policy in force) is tax free in a life settlement. Life settlement taxation above the total amount of premiums paid occurs as capital gains. Life settlement taxation of Whole life or Universal Life Policies also treats the portion of premiums paid above the cost of insurance as tax free. The portion of life settlement proceeds above that, up to the amount of cash value is considered ordinary income. Life settlement taxation above the cash value occurs as capital gains.

Amrita Financial strongly urges anyone considering a life settlement to consult with their tax specialist, attorney or other trusted financial advisor. Amrita Financial does not provide tax advice and is not authorized to act as a tax professional. Life settlements have state and federal tax implications.