Term Life Cash Value

[Summit1]

Client's Term policy cancelled at age 70 and he received the cash value from the policy. The company has not sent a 1099. I have had Whole Life policies where a portion of the cash value was taxable. Basis of cash value was adjusted by premiums paid less dividends received. ( 1099 was issue for this ). Would the same be true for a Term Policy?

[qbteachmt]

Are you sure this wasn't...

https://www.investopedia.com/ask/answers/08/variable-life-insurance.asp

[jeffmcpa2010]

Never heard of a "true" term life policy that had a cash value. Sound's like it must be some kind of a hybrid policy.

Has the taxpayers called the insurance company to get information about taxation of the distribution? That's where I would have them start.

[qbteachmt]

"The company has not sent a 1099."

Yet. Or, perhaps he ignored that envelope. Or, he needs to get it from his online account. Or, he can get it from the broker/agent/company. There also would be some sort of closing statement.

[PATAX]

For what it is worth, about 3 or 4 years or so ago I saw this: a life insurance policy that had a cash account attached to it. Part of the premium payments went towards life insurance and part went into this cash account that paid a guaranteed interest rate and the interest was deferred each year. When the life insurance policy was cancelled, the balance of this cash account was sent and no 1099 was issued. The Life Insurance Company, which was a major company, said No 1099-r was issued , because the amount was not taxable ,since the total of all the premiums paid was more than the cash balance payout from the balance of this cash account. Hopefully my pea brain memory got this correctly . Just my opinion.

[Summit1]

Thank you for the reply.

I have asked the client to contact the insurance company and inquire. I also asked him to document the premiums paid during the life of the policy and also review to see if any dividends were paid to him during the life of the policy. this would at least give us some additional information to work with and to be able to document any income if it is determined that this amount needs to be reported. The client has not received any documentation from the insurance company.

thank you

[PATAX]

You're welcome. The interest that was earned on this cash account was always reinvested or stayed in the account, and was not taxable each year. No payments were ever received from this when the insurance was in effect. I have a hunch that what I described may apply to your client. Good luck

[Summit1]

Thank you very much! If I get additional information from the client I will post it.