Every year, we get a lot of questions about life insurance payouts and how taxes are going to impact the payout from the plan. When you’re shopping for life insurance coverage, it’s vital that your family has the money that they need.
Life insurance is one of the most important investments that you’ll ever make for your loved ones. If something tragic were to happen to you, your family would be responsible for all of your debts and other final expenses.
At MillionDollarLifeInsure.com, we know that shopping for life insurance is not a fun task, but that’s why we are here to help. It’s our mission to ensure that you’re getting the best life insurance protection available.
Taxes On Life Insurance
We all know that taxes can be confusing. In fact, most people have a minimal idea how taxes work. When you’re purchasing life insurance, it’s important that you consider all of the factors that are going to impact your life insurance coverage.
One of the most common questions that we get is “how much of my life insurance is going to be taken out of taxes?” The answer isn’t as simple. Several kinds of taxes could be taken out of your life insurance benefit. You have federal income tax, state income tax, and your estate tax. The amount of taxes that are going to be taken out are going to depend on how the beneficiary of the plan chooses to receive the benefit as well as the value of your estate.
In most cases, the beneficiary of the life insurance plan is going to receive the payout in a lump-sum, which means that they are going to get all of that money at one time. In these cases, the payout is not going to be taxed by federal or state income. In fact, in the vast majority of cases, your family won’t be required to pay any taxes on the payout for the life insurance coverage.
One situation in which your family will have to pay taxes on the payout is if they decide to get the money in annual payouts instead of getting the money as a lump sum. Depending on the insurance company, some of them will pay interest on the money while they are holding the remaining balance. Your family will have to pay taxes on the interest that is earned because it’s deemed as income. Any interest that they are paid, they are going to takes taxes out of.
Another circumstance in which the payout is going to be taxed is if the value of the estate is worth more than $5.43 million dollars. If you passed away, and all of your possessions and worth equaled more than $5.4 million dollars, then your family is going to have to pay estate taxes. Depending on the value of your estate, your family would owe $200,000 or more to the IRS. There are some ways that you can avoid paying estate taxes, but we won’t get into those techniques in this post.
How Much Life Insurance Do You need?
Aside from having a life insurance plan, it’s vital that you give your family enough insurance coverage. Not having enough protection could leave your family with additional bills and expenses that they wouldn’t have the money to cover. There are a couple of key categories that you should consider when you’re shopping for insurance.
The first number that you should look at is your debts and other final expenses. The primary goal of your life insurance policy is to give your family the money that they need to pay off any bills that they would be responsible for. Make sure that your policy is large enough for your family to pay off the mountain of debt that you would leave behind.
The next number that you should add into the equation is your annual income. If you’re the mainstream of income in your family, then your family would struggle without that money. That’s where your life insurance comes in. It will give them the money that they need to pay for any necessary expenses.
The last number that you should toss into that equation is any final expenses that your family would be responsible for like funeral expenses are burial related costs. The average funeral costs around $10,000, which can be difficult for a grieving family to cover. Your life insurance plan will give your family the money that they need, without having to drain their bank account.
Questions about Taxes and Life Insurance
We know that shopping for life insurance is a tricky situation. It’s vital that you make the perfect decision, but there are dozens of factors that you’ll need to consider. If you have any questions about life insurance or the options available to you, please contact one of our agents today. We would love to answer those questions and ensure that you’re getting the best rates available.
Because you never know what’s going to happen tomorrow, you shouldn’t wait another day to get the coverage that your family deserves. Contact us today, and we can get the process started and find the best policy for you. We are a group of independent insurance agents, which means that we don’t work with one single company. Instead, we work with dozens of highly rated companies across the nations, and we can bring a personalized set of quotes directly to you.