Insurance death benefit Options

[AlbanyConsultant]

I've finally had a participant die where he hasn't terminated and cashed in the policy first... and I've realized that I have almost no idea how to handle it.

The face value of the policy is $72,000, and the cash vaue at the time of death was $16,000. If I'm getting all this straight, this means that $56K is due to the beneficiary (which is its own problem, but... well, that's a separate problem) tax-free, and the $16K is taxable, able to be rolled into an IRA with the rest of the "regular" balance. Is this correct? Thanks!

[Belgarath]

Agree, with a couple of quick observations. Assuming the participant properly declared the taxable term costs as income and wasn't an unincorporated owner, then the accumulated taxable term costs should be recoverable income tax free as well.

In a death situation be a little careful - sometimes people say "tax free" meaning income tax free - but the proceeds are included in the estate, which may or may not be subject to estate tax. Clients sometimes hear "tax free" and think that means all taxes.