How Lapsing a Life Insurance Policy With a Loan Can Cause a Tax Bomb

Life Insurance Loan Can Have Tax Consequences

When life insurance is surrendered or lapses, its remaining value is used to repay any loans that have been taken out on the policy—a situation that can create unexpectedly large tax bills, as the taxable gain on the policy is calculated without considering the presence of the loan.  Michael Kitces explains that clients can avoid this “tax bomb” by holding on to a policy until death.

To read the full article in Nerd’s Eye View, click: How Lapsing a Life Insurance Policy With a Loan Can Cause a Tax Bomb.