A tax-liability rule governs the sale or transfer of life insurance policies. If a life insurance policy is sold, the value of the policy becomes taxable, minus the value of premiums paid up until the time of transfer, and the value of the items exchanged in the transfer. For example if Frank sells his $300,000 policy to Jane for $10,000 and he has paid $30,000 in premiums, the policy turns into $260,000 in taxable income ($300,000 - $10,000 - $30,000). In certain situations tax-exempt status can be kept, for example if it is transferred to the insured, a partner of the insured, or a company where the insured is an officer or stockholder.
Related information about transfer-for-value rule:
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Transfer For Value Rule An exception to section (a) () of the internal revenue code tax-exempt status of the death benefit in a life insurance policy where.
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