Income Tax Implications of Life Insurance Living Benefits

Healthcare costs and lost wages as a result of illness or injury can make a major impact on your clients’ financial future. On the plus side, certain types of life insurance are designed to provide the confidence your clients and their loved ones need.

This document examines some of the potential tax implications with regard to qualifying health events and policy ownership. In general:

• Terminal illness or chronic illness/long term care (LTC) benefits should be income tax-free if the death benefit would have been income tax-free upon the death of the insured. (These benefits would be taxable to the business for business-owned policies).
• Critical illness benefits should generally be income-tax free when premiums are paid by the individual insured rather than by an employer.