by maurice » Thu Jan 24, 2013 02:03 am
Please advise how you would calculate the taxable income on surrendering a whole life policy , having paid 10 years of the premiums, reciving dividend each year as additional paid up ins. and from the 11th year premiums were paid as loans from reducing the Death Benefits/ Cash Value of the policy with each year unpaid loans were charged at avg of 4.5% and unpaid loans and interest were compounded each year.
Posted: Thu Jan 24, 2013 05:18 am Post Subject:
The answer is simple. To the extent you receive more than you paid in premiums, that is your taxable income. The loans taken do not diminish the taxable income, and, in fact, if used to pay premiums due, as the post seems to indicate, can actually increase the tax liability if the policy is surrendered or lapses.
There is recent Tax Court case law on exactly this point. The "poetic justice" was that the appellant was an attorney, who was slapped down by the Appeals Court for not reading his contract.
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