Life Insurance | Tax Cuts and Jobs Act (TCJA)

The Tax Cuts and Jobs Act (TCJA) of 2017 brought changes to the tax treatment of life insurance policies, impacting policy loans, withdrawals, and the taxation of death benefits. This article provides an overview of the TCJA’s origins, key provisions, and implications for policyholders and the life insurance industry.

Tax Cuts and Jobs Act – History and Purpose:

 The TCJA was enacted to reform the tax code, reduce tax rates, and stimulate economic growth. Among its many provisions, the act introduced changes to the tax treatment of life insurance policies, affecting policyholders and insurers alike.

Tax Cuts and Jobs Act Key Provisions:

• Corporate-Owned Life Insurance (COLI): The TCJA affects the tax deductibility of interest on policy loans for COLI policies, limiting the circumstances under which interest can be deducted.
• Estate Taxes: The TCJA temporarily doubled the estate tax exemption amount, impacting the use of life insurance in estate planning.
• Policy Loans and Withdrawals: The TCJA maintains the tax treatment of policy loans and withdrawals, with no significant changes to the existing rules.

Tax Cuts and Jobs Act Implications for Policyholders:

• Tax Planning: Policyholders need to consider the impact of the TCJA on their estate planning and life insurance strategies, particularly regarding the increased estate tax exemption.
• Corporate-Owned Policies: Businesses with COLI policies need to be aware of the changes to the tax deductibility of interest on policy loans.
• Estate Planning: The increased estate tax exemption provides an opportunity for policyholders to review and adjust their estate planning strategies to maximize tax efficiency.

The TCJA significantly impacts the tax treatment of life insurance policies, particularly in the context of estate planning and corporate-owned policies. Understanding these changes is essential for policyholders seeking to optimize their tax strategies and make informed decisions about their life insurance coverage. At The Policy Shop, we can help you navigate the complexities of the TCJA and structure your policy to meet your financial goals while maintaining favorable tax treatment.