Use this checklist to see how life insurance affects this year’s tax return
As you get ready for another tax season, don’t forget to look at your life insurance. It can affect your tax return.
Of course, the main reason for buying life insurance is to have financial protection in case of death. In addition to that, life insurance also has tax benefits. But how do you know which tax benefits might apply to your tax return this year?
Here’s a simple checklist to make it easier. While a checklist like this can’t cover every possibility, it can give you a good start. For detailed advice on your specific situation, you’ll want to talk with your advisor and a tax professional.
|Tax season checklist - Life insurance|
|If this happened with life insurance last year...||How does it affect your tax return this year?|
|You received a life insurance payout after the death of a loved one.||The money's not taxable if the life insurance policy named you as a beneficiary.|
|Do you own life insurance that can build up a cash value over time?
|Your policy's cash value increased and you didn't withdraw or borrow this money.||This money's not taxable, so long as it stays in the policy and it's within government limits. (If it exceeds government limits and this could not be corrected, your insurance company would likely have contacted you.)|
|You used your policy's cash value as collateral for a loan from a bank or other third-party lender.||Your interest payments may be tax-deductible if you use the loan to earn income from your business or property. The loan is not taxable.|
|You borrowed money from your policy's cash value, through a policy loan.||Your interest payments may be tax-deductible if you use the loan to earn income from your business or property. Some of the borrowed money may be taxable. Your insurance company will send you a T5 slip to report any taxable amounts.|
|You continued making payments for a policy you donated to a registered charity.||You usually get a tax credit from the charity for your payments.|
|You withdrew some cash value from your policy or you completely cashed out (surrendered) your policy.||Some of this money may be taxable. Your insurance company will send you a T5 slip to report any taxable amounts.|
Use this checklist to see how life insurance affects your tax return.Opens a new website in a new window