What are the income tax consequences when the owner of a life insurance or endowment contract takes the lifetime maturity proceeds or cash surrender value
in a one sum cash payment?
A commission on a traditional policy may be as high as 120 percent of the first year premium; PPLI commissions tend to range from 0.2 percent to 0.5 of cash surrender value
. (27) When evaluating the costs of structuring PPLI, the purchaser must also be sensitive to various taxes imposed on the purchase of life insurance.
Initially, no cash surrender value
accrues--similar to what happens in the whole life policy scenario given earlier.
If the change occurs after the five-year period and during the 15-year period beginning on the date of issue of the policy, the recapture ceiling is the excess of the cash surrender value
of the contract immediately before the reduction over the cash value corridor immediately after the reduction.
This kept the cash surrender values
from increasing, which limited the amount of life insurance that could be purchased from the cash value.
Regions Bank of Birmingham, Ala., for one, had at the end of 2009 a cash surrender value
of $2.42 billion, double what it had at the end of 2006 and up from zero a year prior to that.
In the case of policies where notification of premium due is not required, the notification of cash surrender value
shall apply in cases where the insurer voluntarily sends a notice of premium due.
With cash value insurance the excess of net premiums paid (i.e., the premiums paid less dividends declared, if any) over the increase in cash surrender values
is considered an insurance expense.
Still, the life insurance value of an insured's life is, in some sense, his (or her) property: he can pass it on to the next generation by paying the premiums and letting the policy "mature" upon his death, or he can use it as a current asset by taking advantage of his insurability through cash surrender value
or by sale of the policy.
However, the statute states that it "includes any increase in death benefit under the contract," (7) but not increases attributable to dividends (for paid-up additions), interest credited to the policy's cash surrender value
, increases necessary to maintain the corridor between the death benefit and the cash surrender value
required by the definition of life insurance, (8) or cost-of-living adjustments.
A life settlement turns insurance assets into cash, giving the original policyholder an amount greater than the cash surrender value
in exchange for ownership of the policy.
When an institution is planning to acquire BOLI that will result in an aggregate cash surrender value
in excess of 25 percent of its tier 1 capital plus the allowance for loan and lease losses, the agencies expect the institution to obtain the approval of its board of directors or its designated board committee.