Delayed payment of proceeds from Life Assurance - how to record?

Mike or Penny Novack stepbystepfarm at mtdata.com
Thu Dec 25 09:05:39 EST 2014


>
> If the premiums paid, less charges taken by the insurance co, amount 
> to less than the amount returned is that a gain or loss where you are ?
>

While not professional in tax advice I was a professional in the life 
insurance industry and had studied enough for a FLMI designation. You 
have just given a perfect example of why professional help in your 
jurisdiction is needed.

Here (in the US, and in my state of Massachusetts, which also has an 
income tax) if the cash value minus premiums and minus surrender charges 
(if any) is positive would be a gain (other charges associated with the 
policy, the sales commissions, interest for paying the premium monthly 
rather than annually, etc. would not be deducted). If negative, would 
not be considered a deductible loss for tax purposes. Keep in mind that 
although cash value types of life insurance can be considered investment 
vehicles, particularly well suited to particular circumstances, still 
considered to be primarily "insurance" and so if negative that isn't a 
loss but can be considered cost of insurance coverage.

Here (in the US, and in my state of Massachusetts) life insurance has 
some special properties with respect to taxation. For example, who is 
receiving the money matters. For example, if the policy owner surrenders 
the policy for its cash value, that's one thing. But if the money is 
going to the beneficiary under the terms of the contract  it is quite 
different. In other words, insurance can be a legitimate means of "tax 
avoidance". Not "cheating on taxes" but having transformed an asset that 
if passed on in its original form would be taxed into another form that 
can pass to heirs untaxed. Also useful to allow family small businesses 
(a farm for example) to be passed down to the next generation and not 
having to be sold off to pay shares to other heirs or to pay estate 
taxes. I am putting this detail in because we have people here asking 
questions about accounting for small businesses and partnerships but I 
haven't yet seen questions  about accounting for this sort of thing. In 
fact, haven't had previous questions about "accounting for cash value 
life insurance".

Michael D Novack, FLMI


-- 
There is no possibility of social justice on a dead planet except the equality of the grave. 



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