Advanced Underwriting Consultants

Question of the Day – May 9

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: I sold a client a permanent life insurance policy 25 years ago.  The client has now reached the maturity date for the policy.  What are the tax consequences of the client receiving the maturity proceeds from the policy?

Answer: The receipt of the maturity proceeds will probably be taxed as a surrender of the policy.  That means that value received in excess of basis will be subject to ordinary income tax.  This tax treatment is true even if the client has attained age 100.

The death benefit may be income tax free if it is paid to a terminally ill insured—that is, a person with a life expectancy of two years or less.  See Internal Revenue Code Section 101(g).

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.