Solved: Yes, the same amount as the distribution
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New Member

I received a 1099r for a distribution from an insurance policy that I paid into for roughly 60 yrs, the amount of the distribution is less that I paid.

I received a 1099r for a distribution from an insurance policy that I paid into for roughly 60 years...the amount of the distribution is less that I paid over the course of the years. Is this treated as taxable income? Can I offset that by the amount of the premiums I paid?

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Level 9

I received a 1099r for a distribution from an insurance policy that I paid into for roughly 60 yrs, the amount of the distribution is less that I paid.

There are a large number of variations of life insurance policies.  The "tax advantage" of life insurance occurs when a policyholder purchases a policy where a portion of the annual premium results in the build up of cash value as a result of profitable investments by the insurance company.  Those investments can be paid out, typically annually, in the form of dividends which the IRS considers as not-taxble return of excess premium.  Alternatively, dividends can be retained and over time come to totally pay the cost of insurance.  

For many types of policies where that "excess premium" results in an increase in death benefit and cash value, if no withdrawal (and not speaking of a "policy loan") is taken during the life of the insured, the increase in death benefit is not taxable.  HOWEVER, if a policy owner terminates a policy in which value has increased, the IRS hold that some of that distribution is in fact investment return and taxable, while the remainder may be a return of premium, depending on terms of the policy.

The one policy where the policyholder derives zero benefit of any of this is with a "term policy" in which there is only a one year, typically, to pay a death benefit and no build up of investment value.

So, without knowing the type of policy which you purchased and given the obvious fact that you are still alive ...  seems like your "early" termination of the policy makes the proceeds taxable.



Scruffy Curmudgeon
PFFM, IAFF, Locals 718 & 30, retired firefighter/medic; university faculty - Strategy & Quantitative Methods Med-M&M, Law discriminatory statistics, Med & PH - epidemiology statistics;
USAR 64-67 AIS/ASA MOS 9301 O3
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8 Replies
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Level 15

I received a 1099r for a distribution from an insurance policy that I paid into for roughly 60 yrs, the amount of the distribution is less that I paid.

Did the issuer put the taxable amount in box 2a?
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
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Level 9

I received a 1099r for a distribution from an insurance policy that I paid into for roughly 60 yrs, the amount of the distribution is less that I paid.

strange, I spent about 5 minutes writing an answer without any indication of other action on this question, and you also received no notification as well.


Scruffy Curmudgeon
PFFM, IAFF, Locals 718 & 30, retired firefighter/medic; university faculty - Strategy & Quantitative Methods Med-M&M, Law discriminatory statistics, Med & PH - epidemiology statistics;
USAR 64-67 AIS/ASA MOS 9301 O3
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Highlighted
New Member

I received a 1099r for a distribution from an insurance policy that I paid into for roughly 60 yrs, the amount of the distribution is less that I paid.

Yes, the same amount as the distribution
Highlighted
Level 15

I received a 1099r for a distribution from an insurance policy that I paid into for roughly 60 yrs, the amount of the distribution is less that I paid.

Then it is all taxable according to the payer.  If you disagree then contact the payer.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Highlighted
Level 9

I received a 1099r for a distribution from an insurance policy that I paid into for roughly 60 yrs, the amount of the distribution is less that I paid.

@macuser_22 Because, as I wrote below, he is cashing in an existing policy that appears to be a variation on "Whole Life."


Scruffy Curmudgeon
PFFM, IAFF, Locals 718 & 30, retired firefighter/medic; university faculty - Strategy & Quantitative Methods Med-M&M, Law discriminatory statistics, Med & PH - epidemiology statistics;
USAR 64-67 AIS/ASA MOS 9301 O3
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Highlighted
Level 15

I received a 1099r for a distribution from an insurance policy that I paid into for roughly 60 yrs, the amount of the distribution is less that I paid.

@Scruffy_Curmudgeon - What are you suggesting?   Insurance is non-qualified.  The box 2a amount will be used as the taxable amount.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Highlighted
Level 9

I received a 1099r for a distribution from an insurance policy that I paid into for roughly 60 yrs, the amount of the distribution is less that I paid.

It really varies by policy type but look at this
"The surrender of your policy may result in taxable gain. If you surrender your cash value life insurance policy, any gain on the policy will be subject to federal (and possibly state) income tax. ... Your basis is the total premiums that you paid in cash, minus any policy dividends and tax-free withdrawals that you made."  Notice that dividends received reduce the basis.
Where the policyholder, here, has held the policy for 60+ years, this is certainly an older type of policy which front-loaded the commission and operating expense of the policy, and may have had reducing premiums over the years (a lot of the older policies offered that as an inducement (when you retire, it costs nothing!) - so over 60+ years there has been considerable investment gain and if paid out as death benefit it would not be taxable, but as surrendered most assuredly is taxable.  


Scruffy Curmudgeon
PFFM, IAFF, Locals 718 & 30, retired firefighter/medic; university faculty - Strategy & Quantitative Methods Med-M&M, Law discriminatory statistics, Med & PH - epidemiology statistics;
USAR 64-67 AIS/ASA MOS 9301 O3
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Highlighted
Level 9

I received a 1099r for a distribution from an insurance policy that I paid into for roughly 60 yrs, the amount of the distribution is less that I paid.

There are a large number of variations of life insurance policies.  The "tax advantage" of life insurance occurs when a policyholder purchases a policy where a portion of the annual premium results in the build up of cash value as a result of profitable investments by the insurance company.  Those investments can be paid out, typically annually, in the form of dividends which the IRS considers as not-taxble return of excess premium.  Alternatively, dividends can be retained and over time come to totally pay the cost of insurance.  

For many types of policies where that "excess premium" results in an increase in death benefit and cash value, if no withdrawal (and not speaking of a "policy loan") is taken during the life of the insured, the increase in death benefit is not taxable.  HOWEVER, if a policy owner terminates a policy in which value has increased, the IRS hold that some of that distribution is in fact investment return and taxable, while the remainder may be a return of premium, depending on terms of the policy.

The one policy where the policyholder derives zero benefit of any of this is with a "term policy" in which there is only a one year, typically, to pay a death benefit and no build up of investment value.

So, without knowing the type of policy which you purchased and given the obvious fact that you are still alive ...  seems like your "early" termination of the policy makes the proceeds taxable.



Scruffy Curmudgeon
PFFM, IAFF, Locals 718 & 30, retired firefighter/medic; university faculty - Strategy & Quantitative Methods Med-M&M, Law discriminatory statistics, Med & PH - epidemiology statistics;
USAR 64-67 AIS/ASA MOS 9301 O3
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