MichaelL1
Level 15

Get your taxes done using TurboTax

The IRS has some fairly recent Revenue Rulings on this.  I have put a link below.  Basically your costs of the policy plus premiums paid is your cost basis (for determining any gain or loss).

So, if I for example paid $50K for a policy and then another $20K in premiums, my cost basis would be $70K and then that would reduce my gain by $70K, so then If I got $100K at the end, I would have a $30K profit.  The premiums I pay are not currently deductible, but only at the end.  

http://www.thetaxadviser.com/issues/2009/aug/tworecentrevenuerulingsclarifytaxtreatmentoflifesettlem...

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