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I have an insurance policy which I do not now need. For many

I have an insurance policy...
I have an insurance policy which I do not now need. For many years I have borrowed on it for a variety of reasons including the to pay the premiums. This morning I discussed with the insurance company the possibility of not continuing to pay. I was told that in that case the contract would be terminated and I would have to include an additional $227,000 on my taxable income. I am 79, in ill health, my wife has recently been diagnosed with Alzheimer's. Other than suicide, is there a reasonable way out?
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Answered in 1 day by:
8/4/2010
MequonCPA
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2,342
Experience: CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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Dear yw312tuu -

 

Sorry to read about your circumstances. What the insurance company has told you is correct. Over the years your have borrowed against the cash value of the policy. Whether it was to pay the premiums, interest or taking cash. You essentially have used the $227K for whatever purpose. If you cash in the policy, unless you also repay your loans, you will have a large amount of income to report and pay tax on. Assuming a 35 - 40% combined tax rate, you would breakeven in 3-4 years (but you wouldn't have the the insurance).

 

While you may not need the insurance, it may provide your beneficiaries with additional assets. You should review your options with your insurance agent/company and your tax advisor to determine what is best in your situation.

 

MequonCPA
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2,342
Experience: CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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