How to Optimize Your Life Insurance Planning for Taxes

How to Optimize Your Life Insurance Planning for Taxes
Shutterstock
Mike Valles
Updated:
0:00
Buying a life insurance policy can help provide additional funds for your beneficiaries if needed and help cover many of their expenses after you are gone. An advantage of using life insurance proceeds is that it is generally not taxable. Making sure it helps your beneficiaries the most requires optimizing your life insurance as part of your retirement planning.

Life Insurance Proceeds Usually Not Taxable

Most of the time, the Internal Revenue Service (IRS) says that life insurance income is not taxable for the beneficiaries of the deceased. You do not need to report it on your taxes.
One exception is when you receive life insurance proceeds in payments, and the account earns interest. In that case, you will pay taxes on the interest earned. If you must report it, you can use either Form 1099-INT or Form 1099-R.

Whole Life Is Better Than Term Life for Retirement Planning

As part of your insurance planning, it is better to buy whole-life insurance, which can go by many names, including permanent life insurance. There are two basic types of life insurance—whole-life or term life—but they have many variations, options, and names.
Mike Valles
Mike Valles
Author
Mike Valles has been a freelance writer for many years and focuses on personal finance articles. He writes articles and blog posts for companies and lenders of all sizes and seeks to provide quality information that is up-to-date and easy to understand.
Related Topics