Financial implications for having life insurance

Having life insurance can affect your taxes and your financial situation. Talk to a lawyer or financial advisor to understand how this may affect you. Here are some things you should know:

Medicaid
The cash value of a policy is considered an asset when it is determined whether you are eligible to receive Medicaid. The proceeds of a loan using the policy as collateral could also be considered as a good.

Taxes
The cash value of a life insurance policy generally accumulates deferred taxes. This means that you do not pay the taxes until later, if you ever pay them. Withdrawals of cash value are generally not subject to tax until the amount of the withdrawal exceeds the total of the insurance premiums paid in the policy.

The law considers benefit for cause of death as a reimbursement for the loss of the beneficiary, not as an income. Beneficiaries rarely have to pay federal income taxes or inheritance taxes for the payment of benefits due to the death of life insurance.

If you do not name a beneficiary, or if your beneficiary has died, the company will pay the benefit due to death to the insured’s estate (by its name in English). Your heirs may have to pay taxes on the money they receive from your estate.

Bankruptcy
The cash value of a policy and the benefit for cause of death are usually exempt from:

creditors;
lawsuits in bankruptcy proceedings; Y
However, confiscation or other legal process.

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