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Finance-TipsThe following Life Settlement Tax info is provided as general overview for informational purposes only. Please understand that LifeSettlementTax.com does not provide tax advice.

  • The tax implications of a life settlement should be considered prior to the transaction.
  • The taxation of a Life Settlement may vary on a state by state basis. Taxes may also vary due to tax bracket.
  • Advice and reviewing the settlement from a professional tax advisor (CPA) is recommended.
  1. Return of Premium Outlay
    No tax is due on the amount equal to a policyholder’s totaly premium outlay (cost basis) because it is referred to as a return of capital.
  2. Ordinary Income Tax
    Ordinary income tax is due on the remainder between the total premiums paid and the CSV (Cash Surrender Value). If the policy was surrendered back to the life insurance company for its CSV (rather than sold for more through a Life Settlement in the secondary life insurance market), the policyholder would owe exactly the same amount.
  3. Capital Gains Tax
    Long-term capital gains tax (15% maximum tax rate) is due on any amount received above of the CSV (Cash Surrender Value). The policy that was settled should qualify as a capital asset because it has been owned in excess of a year.

For example, the taxation on a life settlement on a $1,000,000 policy with $50,000 paid premiums, $60,000 CSV and $200,000 life settlement value might be:

1. No tax due on $50,000 (return of premiums).
2. Ordinary income tax due on $10,000 (Cash Value minus premiums paid).
3. Long-term capital gains tax due on $140,000 (payment received above of CSV).

Financial-planningLife Settlement Taxation

Call 1-888-973-8377 to speak with a Life Settlement Professional. Receipt of a cash settlement under a Life Settlement may affect your eligibility for public assistance programs, such as medical assistance (Medicaid), aid to families with dependent children, supplementary social security income and AIDS drug assistance programs. Such payments may also be taxable and subject to claims of your creditors. Before applying for a Life Settlement, you should consult with the appropriate social services agency concerning how receipt could affect your eligibility and that of your spouse or dependents. Due to the potential tax consequences, please consult with a professional tax advisor.