Understanding the tax implications of replacing or selling existing life insurance coverage will help shed some light on the options available to financial advisors and policy holders looking to capitalize on the hidden value in their life insurance plans. Policy holders need to know what the tax implications are for coverage payments in advance of death. They need to know whether viatical agreements will be taxed, and they need options when it comes to replacing expensive or undesirable life insurance policies with more favorable policies. Following are some ideas to help consider taxation of life insurance proceeds both as pre-payment advances for viatical purposes and in the case of life insurance settlements.
Viatical or Advance Payment Coverage
Viatical payments and accelerated payment of coverage in advance of death remain tax-exempt. Congress continues to favor the tax-exempt status of these policies and therefore, will probably remain tax free. To be sure, viatical and advanced payment plans cover medical bills and allow terminally or chronically ill policy holders with a life expectancy of two years or less to use insurance coverage now instead of later....
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