Protection Planning Common Questions

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Will I be taxed on the growth of the cash value of my life insurance? What if my policy pays dividends?

Answer:

One of the advantages of cash value life insurance is that the cash value is allowed to grow without incurring a current tax liability. In general, the cash value is allowed to grow on a tax-deferred basis until one of the following events occurs:

The policy is surrendered – you cash it in
The policy is transferred for value – you sell it or assign it, etc.
The policy ceases to meet the IRS definition of a life insurance contract

Typically, there is no tax liability until one of these events occurs because of the substantial limitations and restrictions on receiving distributions from the cash value.

Some life insurance policies (known as participating policies) pay dividends to their policyholders. Dividends are generally not taxed as income to you. Instead, they are considered a return of your premium regardless of whether you receive them in cash, use them to purchase additional coverage, use them to reduce future premiums, or leave them invested with the insurance company. However, if your dividends exceed the total premium payments for the insurance policy, the excess dividends are considered taxable income. If you leave your dividends invested with the insurance company, the interest earned on this investment will be considered taxable income.

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Products:

Life Insurance

GE 37217 (03/07)

Policy withdrawals are not subject to taxation up to the amount paid into the policy. Policy loans and/or withdrawals will be taxable to the extent of gain if the policy is a modified endowment contract. Policy loans and/or withdrawals also reduce the cash surrender value and policy death benefit and increase the chance that a policy will lapse. Taking a policy loan could have adverse tax consequences if the policy terminates before the insured's death.

Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent advisor. AXA Equitable and its affiliates do not provide legal or tax advice.

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