Those who hold a life insurance policy may not realize it, but there are certain tax concerns that come with the ownership of a policy.
If the person who's life is insured by the policy is also its owner, the death benefit will be taxed as part of their estate when they die, reported insurance agent J. Brendan Ryan in a column for the Cincinnati Enquirer. In order to avoid this tax, some consumers consider listing their spouse as the policy owner, a cheap and flexible approach that allows for a change in the event of a divorce. Children can also be named a policy owner, but this can become complicated if there are multiple children, said the source.
Some life insurance policyholders consider arranging for an irrevocable trust to hold ownership over their policy. While this can be a safe option, it costs more money to arrange and is a permanent decision, making it critical that a policyholder does his or her homework before the arrangement.
Life insurance buyers concerned with the tax implications of their policy are advised to talk to a financial planner throughout the process, experts say.