Join Early Retirement Today
Reply
 
Thread Tools Display Modes
drawing money from life insurance
Old 08-20-2015, 10:30 AM   #1
Thinks s/he gets paid by the post
 
Join Date: Jan 2010
Location: dubuque
Posts: 1,169
drawing money from life insurance

my sister in law needs back surgery and my brother in law was wondering if he took money from his life insurance policy is it taxable or is it better to borrow against it? he wants to withdraw some but do it in a way that has the least tax consequences. thanks
frank is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 08-20-2015, 03:30 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,264
If he cashed it in, typically any amount received in excess of premiums paid would be income for tax purposes. He can ask the insurer what the tax implications would be if he surrendered and they should be able to provide that to him.

If he is no longer insurable, he may be better off to take a loan unless he has no need for life insurance.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 08-20-2015, 03:51 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Big_Hitter's Avatar
 
Join Date: May 2013
Location: Les Bois
Posts: 5,761
Aren't policy loans tax free?
__________________
You can't be a retirement plan actuary without a retirement plan, otherwise you lose all credibility...
Big_Hitter is offline   Reply With Quote
Old 08-20-2015, 06:11 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,794
Quote:
Originally Posted by Big_Hitter View Post
Aren't policy loans tax free?
It's been a long time since I took a policy loan, but I do not recall a requirement to even report the transaction on the tax form. If you sell (relinquish) the policy, you may indeed have to pay taxes. My suggestion (just a suggestion) would be to decide if the policy is still needed. If so, keep it and find funds elsewhere. If not, get rid of it and use the proceeds for required expenditures. YMMV
__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 08-20-2015, 06:47 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,264
Yes, policy loans are tax free. I said.... if he cashed it in.

The downsides are that you can't generate as much cash (usually the max policy loan is the CSV * (1- policy loan interest rate)), but more importantly, you still need to keep paying the contractual premiums.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 08-21-2015, 04:00 AM   #6
Thinks s/he gets paid by the post
 
Join Date: Jan 2010
Location: dubuque
Posts: 1,169
thanks guys. I got the answer I was looking for.
frank is offline   Reply With Quote
Old 08-21-2015, 07:15 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,264
Just keep in mind that if he still needs the insurance benefit and could no longer pass underwriting that he should keep the policy and take a loan.

As an aside, I still keep mine even though I no longer needs the insurance because I have had it long enough that the CSV pays 4% annual interest with no interest rate risk and little credit risk so it is attractive as a fixed income investment ignoring the life insurance benefit.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56
pb4uski is online now   Reply With Quote
Old 08-29-2015, 06:45 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 17,010
What is the rest of his financial situation, as perhaps he would be better off paying for the surgery with credit cards and then if his debts are too large to his income, declare bankruptcy.

After all if he had a lot of savings and stuff, he wouldn't be thinking of selling his life ins.
Sunset is online now   Reply With Quote
Old 08-30-2015, 06:06 AM   #9
Thinks s/he gets paid by the post
 
Join Date: Jan 2010
Location: dubuque
Posts: 1,169
not good. one is on social security and the other works, but not a lot of savings. the worst part is that the brother in law just got out of the hospital a month ago after having surgery for a gall bladder obstruction and some other stomach problems. when it rains it pours.
frank is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Society of Actuaries Whitepaper on Drawing Down Retirement Financial Savings chinaco FIRE and Money 5 10-14-2011 04:32 AM
Deductible IRA While Drawing Pension? travelover FIRE and Money 4 02-25-2009 11:01 AM
Picasso? line drawing question calmloki Other topics 4 12-21-2007 01:47 PM
how to put drawing in a post ? JohnEyles Forum Admin 6 10-12-2006 12:38 PM

» Quick Links

 
All times are GMT -6. The time now is 11:00 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.