The potential elimination of many tax preferences currently afforded life insurance is one facet of today’s fiscal cliff discussions that is often overlooked. Current proposals include provisions that could result in the imposition of taxes and elimination of deductions for both individual and corporate-owned life insurance policies, the proceeds of which are received tax-free under existing law. Clients today assume that the tax-free status of life insurance is a given and may have even engaged in fiscal cliff planning that involves the purchase of life insurance to provide a source of tax-free investment income. Given today’s political climate, it is important for clients to realize that no tax preference is safe and that the tax benefits they have come to expect from life insurance are no exception.
The life insurance fiscal cliff