AboutR. Gene Ramsay Expertise I can answer questions from people regarding health, life, and supplemental insurance. I can also answer certain annuity questions,
long-term care, medicare, vision, dental, group products, individual
products, and certain carriers. Another area would be general discussion on an individual basis to determine need and help individuals make the right decisions for them. I can also field questions from other insurance
providers about carriers I represent so we can do some business together and I am also willing to offer my thoughts on certain issues they may be having
with clients/customers, etc.
Experience
Past/Present clients I would prefer not to divulge current clients without their consent to do so.
Question can I deduct a loss created when i surrender a life insurance policy at a loss ( cash value is less than total premiums paid). If so can you site an IRS reference?
Answer Kathy,
According to George Saenz at Tax Talk:
<<<When you surrender an insurance policy, generally most of what you receive is a return of the premiums you paid for the policy. Since premiums paid for the policy were never deductible, the return of the premiums is not taxable.
If the policy performed well, then you may have received more than the premiums upon its surrender. This is considered ordinary income and is reported on line 7 of your 2003 Form 1040. The insurance company will issue you a Form 1099 reporting the gross amount that you received and, provided they have sufficient information, the amount that may be taxable, if any.
If the insurance company is unable to tell you the taxable amount, you need to compile a record of what you paid in premiums. Sometimes an insurer cannot tell you what you paid as it may have acquired the policy in a merger or the policy may be quite old. However, you should not hesitate to reduce the amount you received by your actual premiums. Depending on how long you have had the policy, it would not be surprising to find that none or only 10 percent to 20 percent of what you received is actually taxable. If you paid more premiums than you received in return, the loss is not deductible.
The older that an insured gets, the more sense it may make to cash in an insurance policy. As the insured ages, the cost of the insurance gets expensive and begins to eat into the value of the policy or makes the annual costs of maintaining the policy quite expensive. Additionally, as you age, the need for the face value of the policy may not exist as sufficient other assets may be available. A professional accountant or trusted insurance adviser can help you make a determination as to whether to maintain the policy or surrender it.
If the cash value in the policy is needed, you can also consider borrowing from the policy, which would not be taxable.>>>
Now, I am not a tax expert by any means, but I can say that from what he is stating and what I have seen I know you can surrender the policy value without being taxed on it as income but I am not sure if you can claim it as a deduction. I would advise you to see a tax expert specifically on this for the regulatory answer you seek.
Hope this helps you on your search for the answer.
