Tax Treatment of Life Insurance Proceeds


One of the important considerations in many financial transactions is the tax treatment the transaction is given. Often, the impact of taxation is a consideration in the purchase of life insurance every bit as much as it applies to stock purchases, bond purchases, and the establishment of qualified retirement plans.

In this course, we will look at the tax treatment given to proceeds from life insurance policies and will consider the taxation of death benefits, cash value withdrawals, loans, and surrenders. In addition, we will examine the differences in tax treatment caused by a life insurance policy's failure to meet the statutory definition of life insurance, a policy being deemed a modified endowment contract, transfer of policy ownership to another person for a valuable consideration, policy ownership by an employer, a life insurance policy's use in a qualified retirement plan, and more.

Learning Objectives

Upon conclusion of this course, students will be able to:

  • calculate the gain to be recognized as a result of various life insurance policy transactions, including:
    • withdrawals
    • loans
    • surrenders
    • payment of death benefits
  • identify the changes to the customary tax treatment of life insurance policy living proceeds resulting from the policy being deemed a modified endowment contract (MEC)
  • calculate the reportable gain upon receipt of life insurance policy death benefits when the life insurance policy:
    • has been transferred for a valuable consideration
    • was included in a qualified plan
  • recognize the types of life insurance exchanges that are tax-free under IRC §1035
  • define the terms "terminally-ill" and "chronically-ill" as used in the Health Insurance Portability and Accountability Act
  • identify the income tax treatment of accelerated death benefits, viatical settlements and life settlements

Tax Year: 2024

Designed For

General understanding of tax treatment of transactions; Ability to apply this understanding to more specific and complex transactions and financial situations


General understanding of tax treatment of transactions; Ability to apply this understanding to more specific and complex transactions and financial situations

Advanced Preparation


WebCE® is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: For more information regarding WebCE administrative policies such as refunds, cancellations and concerns, please contact Support Services at 877-488-9308.

Find this course for your license:

License or Certification