Can An Insurance Company Make Me Pay Taxes On A Loan I Took Out Against My Life Insurance Policy?
Posted October 26, 2009 – 4:26 pm in: structured settlements FAQI took out a loan on a life insurance policy. the premiums i paid had twice exceeded the amount my beneficiaries would recieve if i died. I was told that if i didn’t repay the loan the only penalty would be that amount would be deducted from the pay out if i should die.I did not repay the loan and decided i did not want to keep paying on the policy because i had much better insurance. the insurance company added the cost of the loan plus a lot of interest and unbeknowst to me reported (to IRS)an amount almost 3 times larger than the loan as my additional income. Can they do this?
Tags: Against, Company, Insurance, Life, Loan, Make, Policy, Taxes, Took
3 Comments
If you’d give someone more than a millisecond to answer you question, you might not have to ask it a half-million times.
(Ahem.)
Okay, now for your question… if you had a whole life policy and/or some variation of a universal life policy, the policy was building cash value. You took a loan against that cash value. Then you decided you didn’t need the insurance, so… did you close out the contract and ask them to send you the cash value, or did you stop paying into it and let the cash value be dwindled away providing you with coverage until the cash value was no longer enough to keep the policy active? How long did you have the policy? Was it ever a Modified Endowment Contract (MEC)??
All of those things will become factors. Most particularly the last one, because MECs are viewed by the IRS as investments more than life insurance and, while they are still subject to the same rules as any other life insurance policy if you use them as life insurance, the rules are VERY different if you cash them out.
You should read the original policy they delivered to you (yes, you’re supposed to keep them.) It will specify what type of contract and whether or not it would ever become a MEC. I suspect you’ll find that you did, indeed, have a MEC and this is why you’re being charged in the way you are.
Still, it can’t hurt to contact your agent and/or the company directly for an explaination.
Contact State Insurance Commission
Part of your statement is right about deducting from pay out.
They should of defunct the policy (in my opinion) minus the loan not the interest lot.
No doubt the easiest way to get insurance quotes is on the web.
Why would you waste your time on the phone calling around?
the last time i needed quotes on insurance i used one of these comparison sites and it was great.
this is the site i used and it was quick like less than 5 mins.
The last thing I want to do is listen to elevator music while waiting for a salesman.
Anyway I got good quotes and ended up saving money so I was happy.
So shop around and compare quotes which is easy on the net.
Good starting point is at this site.http://insurance.deal4-you.com
Good luck.