Question for the Money Doctors
Question submitted on Dec 27, 2013.
QuestionI have a life insurance policy that is paid in full. It is a Canadian policy. If I borrow from the policy, what would my tax implications be in the united States. The canadian government is already deducting taxes from the amount I would want to withdraw, but I''m curious as to the implications in the U.S.
If you borrow against your life insurance policy, please be aware of all the terms and conditions of the loan. Some policies can require repayment and some do not require any payments as long as the life insurance policy is in force. A life insurance policy that is "paid in full" generally means there is sufficient cash value in the policy to keep it in force.   However, this may change if you borrow against it.
Please talk to the life insurance company to understand the implications of borrowing against the policy and see if you will be required to make premium payments in the future.
There will be tax consequences of you let this life insurance policy lapse when there is a loan on it.
If you are a US Citizen or Resident, there may be tax consequences of the policy lapses. Please check with the life insurance company to see what this may meant to you.
For additional information visit http://www.360financialliteracy.org/