iQuanti: Term life insurance is a financial tool that helps you provide for your loved ones if you pass away while the policy is in force. It pays out a guaranteed death benefit that can help them pay off debts and replace your income. But what some may not know is that term life insurance could potentially save you money on your taxes as well. The death benefit is generally tax-free, and business owners can deduct some of their group term premiums. You can even donate a term life policy and potentially claim a substantial deduction. Below, we'll discuss the tax benefits of term life insurance in more detail so that you can keep these in mind as you hunt for a term life insurance quote that works for you.
What are tax benefits?
Tax benefits are laws that help you reduce the taxes you pay. They can include:
- Deductions: These reduce the amount of income the IRS taxes.
- Credits: Credits directly reduce your taxes.
- Excluded income: This is any income the IRS allows you to leave off your tax return.
Every tax benefit has specific eligibility requirements. You must meet these in order to claim benefits. If you have any questions or need further clarification, it may be smart to consult with a tax professional.
Term life insurance tax benefits
Term life insurance offers significant financial protection to your loved ones at a low rate, and some tax benefits can help your premium payments go even further. Here are a few you should be aware of:
The death benefit is not taxable
Many assets you may pass on, such as retirement accounts, could be taxed as income when your beneficiaries draw from them. One of the biggest tax benefits of term life insurance is that the death benefit is generally tax-free. So, a term life insurance policy can help maximize financial protection for your loved ones. The tax-free death benefit can give them more funds to cover expenses like debts and funeral costs.
Premiums may be deductible for business owners
Providing your employees with group term life insurance can be a great incentive to keep them happy and attract more talent. Plus, you may be able to deduct your company's premiums. The IRS allows you to deduct the premiums you pay to provide up to $50,000 of coverage. You can't claim a tax deduction on premiums paid for coverage beyond $50,000.
You can give the policy as a tax-deductible charitable gift
Policyholders can name a charity as a life insurance beneficiary. However, if you transfer ownership of the policy to a charity as a gift, you could get a significant tax deduction. This can be a great way to provide significant financial help to your favorite charity while saving a large amount on your tax returns. If you donate a term life insurance policy and remain the payor, you may be able to deduct the cost of those premiums as well. All that said, figuring out your exact tax deduction on a donated policy can be complex. It can be wise to work with a tax advisor to ensure you deduct the correct amount.
Save on taxes with term life insurance
Term life insurance can help you provide for your loved ones if you die by paying out a tax-free death benefit. If you no longer need the policy, gifting it to a charity could potentially help you slash your taxes by a large amount. Plus, if you get a group term policy for your employees, you can write off some of those premiums. Keep these tax breaks in mind as you shop for term life insurance, and make sure you gather multiple quotes to get the best possible rate.
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Original Source: The Tax Benefits of Term Life Insurance
