Tax Law History
Under the Internal Revenue Code ("IRC") dealing with life insurance benefits paid due to the death of the insured, the benefits are usually excluded from the taxable income of the beneficiary.
Because of the tax-free nature of death benefits, the IRC prohibits the deduction of the premiums paid for life insurance when the premium payor is also the beneficiary of the death benefit rather than the individual employee and their family. In addition, loans from insurers secured by policy values are not income and earnings credited to an owner's policy values (known as "inside buildup") by the insurance company are not currently taxed (and may escape taxation altogether if such earnings are not distributed other than as part of the death benefits paid upon the death of the insured).
Read more about this topic: Corporate-owned Life Insurance
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