An insured individual owns a life insurance policy with a face amount of $100,000. If they have a need for long-term care services and they access $40,000 from their life insurance policy in the form of "living benefits" to pay for the cost of the nursing home, upon withdrawal of these funds, how much will be subject to income taxation?

Question

Quizplus · Accepted Answer

If an insured life insurance policy owner withdraws $40,000 for the purpose of paying for nursing home care, they will not be subject to income taxation on any of these funds. This is because in most cases, living benefits from a life insurance policy are not taxable. It is important to note that the individual's death benefit will be reduced by the amount of the living benefits that are withdrawn. In this case, the insured's beneficiaries will receive $60,000 from the life insurance policy upon the insured's death.

An Insured Individual Owns a Life Insurance Policy with a Face