Cash in of Life Insurance

[momm2500]

What is the name of your state (only U.S. law)? PA

I cashed in a little life insurance policy my dad bought for me many, many years ago. It was not even face value. My question is, the company is stating that I am responsible for the tax on the money they gave me. Face value of the policy was $1,000**************dad paid into the policy $476.80 in premiums. the dividends received by dad every year totaled $437.37. The total value was $530.07 (this is the amount of the check i received). The company is stating that they will send me a 1099 and report it to the IRS as retirement income and I will have to pay tax on $490. How is this possible? I have never heard of this before. Can they do this? Why would I be resposible for the dividends if they were sent to dad over the years? I can understand paying tax on the difference between 530.07 and 476.80, but not $490.

policy was originally purchased 30+ yrs ago. at the time dad was owner since i was a minor. when dad passed away, i changed ownership to me and changed the beneficiaries to my spouse and kids.

 

[Betty]

"Generally" you pay tax on the difference between the cash surrender value
of the policy and the amount paid in premiums.

However, there are some exceptions & I don't have enough information to go
on to know if your situation might fall into one of them. Also, they
can get "kind of" involved. You might talk to your ins. agt. or an accountant & see what they say. They will probably have some questions to ask you in regard to the life ins. policy.

 

[momm2500]

thank you for your answer. they told me that i am responsible to pay tax on all dividends that my father received on my policy when he was the owner. i did not become owner till after dad died in 2008. (also, when dad was getting dividend checks, I was a minor) i was totally confused over that. i explained i understand that i am responsible for any cash value from the date i took ownership to the date of cash in, and all they kept saying is that i assumed everything as soon as i took ownership.
total money received $530.07
total premiums paid $476.80
total dividends (dad received) $437.37

i asked for a copy of the 1099 that they sent me (which they never sent me) and what was sent to the IRS, and they said no problem**************.can you believe it has been 1 month and I still have not received anything. I have explained to the IRS that and they can not believe this and also feel that i should not be responsible for $490 in tax but I need something in writing from life insurance company. I can see paying tax on $53.27 but not on $490.

 

[Betty]

Try calling the ins. co. & ask to speak to a manager or director -
someone "high up" (maybe even a VP) - you shouldn't have to wait a mo. for a form. (& they should be able to help you better)

Good luck.