Other Tax Questions
Questions and comments on other topics covered in Fairmark.com, such as UTMA accounts, and any tax questions that don't fit our other categories.
1099-R for Life Insurance Policy
Posted by: haroldml, January 27, 2007 01:31AM
I received a 1009-R for a Prudential life insurance policy & I don't understand why I got it. I never got one before. This policy was part of a settlement with Prudential &, although there are sufficient accumulated dividends & interest to pay the premuims, the last few years I've had to pay partial premiums.

The 1099-R states: "... reports taxable gain on distributions from your Prudential insurance contract including dividends credited to your contract. When the total of dividends credited over the life of the contract exceeds the total premiums paid, the excess dividend is considered gain and is reportable for tax purposes." If this is true, why do I have to still pay partial premiums? Is this legitimate? If so, how can I get records from Prudential that prove that dividends exceed the total of premiums paid?

I also received a 1009-INT for the accumulated dividend interest for this same policy. I've had this policy for about 35 years.

Thanks for any help that you can provide.

HML

Re: 1099-R for Life Insurance Policy
Posted by: edcosoft, January 27, 2007 02:02AM
Very normal. Your cash/dividend value is more than you paid in, making any dividends, or the interest on them, taxable, hence the 1099s (one for the policy and the other for the insurance "profit"). And it's really more complicated than you can imagine, but go ahead and ask for an accounting. The fact that you are paying some premiums is a function of the efficiency of the particular policy you have. I'm in the same boat with NYL, and still don't pay anything, and NEL (MET now) and am not yet in the taxable phase as they are later policies. The breaking point on OL seems to be between 1950 and 1966 (NYL is 1950 and NEL is 1966). Prudential evidently wasn't that efficient as an insurer because you are just now getting taxable dividends ( 1 year later than me) but still paying partical premiums.

ed

Re: 1099-R for Life Insurance Policy
Posted by: sigggyfreud, January 28, 2007 08:38PM
I understand receiving a 1099-R when your dividends exceed the amount of premiums paid in, but what is this business with the 1099-INT? What kind of "accumulated dividend interest" is paid during the term of a regular life insurance policy?

Re: 1099-R for Life Insurance Policy
Posted by: Herb, January 29, 2007 01:03AM
sigggyfreud Wrote:
-------------------------------------------------------
> I understand receiving a 1099-R when your
> dividends exceed the amount of premiums paid in,
> but what is this business with the 1099-INT? What
> kind of "accumulated dividend interest" is paid
> during the term of a regular life insurance
> policy?

I have a paid up whole life policy that my parents purchased more than 50 years ago (so I no longer pay any premiums). Each year, the policy earns a nontaxable dividend and interest on the accumulated dividends. The interest is taxable and, like clockwork, I receive a 1099-INT each year.

BTW, the company is MassMutual (formerly ConnecticutMutual) and is still a MUTUAL company.

Prudential went through the "demutualization" process a few years ago. Could that be the reason for them issuing a 1099-R at this time?


Re: 1099-R for Life Insurance Policy
Posted by: sigggyfreud, January 29, 2007 10:52AM
Herb: I have a "life to 65" policy with Met Life (formerly New England Life) since 1968 and one with Phoenix Life since 1964. Both policies have payed dividends which exceed premiums for several years, and I have never received a 1099-INT for either.

Re: 1099-R for Life Insurance Policy
Posted by: Herb, January 29, 2007 03:15PM
The 1099-INT I receive is NOT for the dividends declared each year. It is for INTEREST on the accumulated dividends (which are nontaxable) held by the insurer in my name. Because the dividends are nontaxable, no 1099-DIV has ever been issued.

And, to clarify further, the policy I have is "paid up" and no longer requires the payment of premiums (whether from dividends or not).


Re: 1099-R for Life Insurance Policy
Posted by: sigggyfreud, January 29, 2007 06:39PM
Herb: I guess my question is: both my Met Life policy ("demutualized") and my Phoenix policy (mutual company) are also "paid up" policies--why don't I receive a 1099-INT? I assume all insurance companies have the same tax reporting requirements.

Re: 1099-R for Life Insurance Policy
Posted by: Herb, January 30, 2007 01:21AM
Maybe the dividends accumulated do not earn interest each year, Check your policy language, as all policies are not the same.

I do recall a small whole life policy my mother got about the time she was married (or just before) for $1,000. She died in 2000 at age 90, after paying a small premium (less than $20/year) for almost 70 years. Final payout was only $1,070!!! By doing the math, it was obvious that she had paid more for this policy than it was worth.

Re: 1099-R for Life Insurance Policy
Posted by: edcosoft, January 30, 2007 04:32AM
siggyfreud: I too have NEM Ord Life policies from 1960 and some later and a NYL from 1955 and one eaven earlier. The NYL are now sending me 1099-Rs but never a 1099 INT. NEM hasn't started yet.

ed

Re: 1099-R for Life Insurance Policy
Posted by: haroldml, February 2, 2007 07:15PM
I apologize for not responding sooner but I was overtaken by other events. Thanks to all of you for your interest in my question.

I have no difficulty understanding the 1099-INT for the interest paid on the dividends.

I still don't understand the 1099-R for this policy. I have not received any distributions. I thought that taxes are owed when an insurance policy is either cashed in or when the proceeds are paid to a beneficiary upon the insured's death & dividends exceed the total premiums paid. I suppose the premiums paid would be the policy's cost basis in this situation. Is there an IRS publication that I can go to to get an understanding of how this is supposed to work?

The following information on the 1099-R doesn't help me. Box 1 shows Gross Distributions. The taxable amount shown in Box 2a has been reduced by the "Employee contributions/Designated Roth contributions or insurance premiums" shown in Box 5.

Thanks again to all of you for your interest.

Haroldml

Re: 1099-R for Life Insurance Policy
Posted by: sigggyfreud, February 2, 2007 08:22PM
The best info I could find is from the Dec 2006 edition of IRS publication 17 (your Federal Income Tax), p 63:

"Dividends on Insurance policies

If dividends on an insurance contract are distributed to you, they are a partial return of the premiums you paid. Do not included them in your gross income until they are more than the total of all the net premiums you paid for the contract. Report any taxable distributions on insurance policies on form 1040, line 21."

Re: 1099-R for Life Insurance Policy
Posted by: haroldml, February 2, 2007 10:11PM
Thanks sigggyfreud. I'll take a look at Pub 17, pg 63. However, in my case, insurance policy dividends are not distributed to me. They are left to accumulate, earn interest &, at some point if sufficient, are used to pay the premiums.

Re: 1099-R for Life Insurance Policy
Posted by: sigggyfreud, February 3, 2007 02:01PM
I believe your case is similar to the situation with mutual fund distributions. Even if you reinvest them in new shares you still are considered to have "received" them (constructive receipt) for tax purposes. Therefore, just as you have to pay interest on your accumulated dividends you must consider them income if they exceed your premiums.

Re: 1099-R for Life Insurance Policy
Posted by: haroldml, February 6, 2007 08:59PM
Maybe that's the explanation.

Thanks.



Sorry, only registered users may post in this forum.