Taxes for Whole Life Insurance Texas TX
Reader’s Question:
Before I sign up for any life insurance policies, I want to know what the tax guidelines with regards to life insurance are. I live in Texas.
Rachel
Houston, TX
Rachel, to understand fully the relationship of taxes and life insurance, you have to know that first of all, premiums paid by the policy holder are not subject to state and federal taxes (Yes, that’s including Texas). Proceeds paid to the insured or policy owner by the life insurance company upon death is not regarded as as gross income and therefore should not be taxable.
However, if the proceeds are included in the estate of the insured, chances are they will be subject to the dreaded federal and state estate and inheritance tax law. Keep in mind that cash value gains of the policy are not taxable unless certain circumstances take place. Knowing these facts, people purchase life insurance products as a hedge against income tax payments on gains made. They are legitimate tax-shelter havens, as savings can increase and not taxed unless the owner withdraws money from the policy.
However there are some life insurance products that are being policed by the IRS. If you are looking to avoid paying taxes for your gains, then you should avoid buying Modified Endowment Contracts. You should also avoid pulling out large amounts of money from flexible-premium policies because once you do that, they are now considered as income and not part of your whole life insurance policy anymore.
Tags: life insurance, life insurance policy
Accidental Death And Dismemberment Life Insurance Houston Texas TX
Reader’s Question:
Would I be better off going with an Accidental Death and Dismemberment Insurance policy here in Houston, Texas?
Joanne
Houston, TX
Before you get an Accidental Death and Dismemberment (AD&D) policy there in Houston, Texas it is very important to understand that AD&D is a very limited form of life insurance, and though it may be very cheap compared to a full blown policy, AD&D’s terms of coverage is basically what the name states, it’s only for instances of Accidental Death and/or Dismemberments.
If you already have a life insurance policy that may or may not be providing adequate protection for all kinds of instances which you may lose your life, then AD&D would be a good addition or rider towards your existing policy since it may double what your beneficiaries may get both from the existing policy and from the AD&D policy that you have. IF you can afford the additional coverage why not? But some would actually still prefer to use that money into purchasing a higher life insurance coverage.
If your job involves being exposed to hazardous conditions or situations that cause loss of life or limb then AD&D may be a worthwhile and cost-effective addition to your policy. Be sure to understand and be realistic about your needs though since a majority of deaths are not due to accidents and these kinds of policies have particular stipulations regarding the specific circumstances which would be the only time that they will grant the benefits.
Tags: term life insurance, cheap life insurance, life insurance information, advise
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