Section 7702 Life Insurance Defined

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Section 7702 Life Insurance Defined

26 U.S. Code § 7702 – Life insurance contract defined

(a) General rule

For purposes of this title, the term “life insurance contract” means any contract which is a life insurance contract under the applicable law, but only if such contract—
(1) meets the cash value accumulation test of subsection (b), or
(2)

(A) meets the guideline premium requirements of subsection (c), and
(B) falls within the cash value corridor of subsection (d).
Section 7702 defines life insurance.  A properly structured life insurance contract is not taxable when cash values are borrowed or death benefits are paid to beneficiaries.
Section 7702 defines life insurance. A properly structured life insurance contract is not taxable when cash values are borrowed or death benefits are paid to beneficiaries.

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Life Insurance Trust Wikipedia

A life insurance trust is an irrevocable, non-amendable trust which is both the owner and beneficiary of one or more life insurance policies.[1] Upon the death of the insured, the Trustee invests the insurance proceeds and administers the trust for one or more beneficiaries. If the trust owns insurance on the life of a married person, the non-insured spouse and children are often beneficiaries of the insurance trust. If the trust owns “second to die” or survivorship insurance which only pays when both spouses are deceased, only the children would be beneficiaries of the insurance trust.

In the United States, proper ownership of life insurance is important if the insurance proceeds are to escape federal estate taxation.[2] If the policy is owned by the insured, the proceeds will be subject to estate tax. (This assumes that the aggregate value of the estate plus the life insurance is large enough to be subject to estate taxes.)[3] To avoid estate taxation, some insureds name a child, spouse or other beneficiary as the owner of the policy.

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An irrevocable life insurance trust is a legal way to avoid estate taxes.
An irrevocable life insurance trust is a legal way to avoid estate taxes.

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Life Insurance Wikipedia

From Wikipedia, the free encyclopedia

Life insurance (or commonly life assurance, especially in the Commonwealth) is a contract between an insured (insurance policy holder)and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the “benefits”) in exchange for a premium, upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum. Other expenses (such as funeral expenses) are also sometimes included in the benefits.

Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot, and civil commotion.

Life-based contracts tend to fall into two major categories:

  • Protection policies – designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance.
  • Investment policies – where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US) are whole life, universal life, and variable life policies.

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Life Insurance Premiums are not deductible.  Proceeds are income tax free but included in the taxable estate of the deceased.
Life Insurance Premiums are not deductible. Proceeds are income tax free but included in the taxable estate of the deceased.

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