To Own or Not to Own Your Life Insurance Policy?
29 Pages Posted: 28 Aug 2011 Last revised: 10 Jul 2014
Date Written: July 6, 2014
Life insurance proceeds are generally subject to the estate tax. An exception is when the policy is owned by the beneficiaries and the insured gives up ownership and control, including the ability to change beneficiaries. Should the insured strategically own the policy contract and potentially subject proceeds to estate and inheritance taxes, or relinquish control, with the beneficiaries owning the policy, and escape such transfer taxes? This paper addresses how the estate tax influences the choice of life insurance ownership. Using samples of estate tax returns, the empirical evidence suggests that those facing high estate tax rates are more likely to forgo ownership and have proceeds excluded from their estates, and provides further evidence on the incentive effect of taxes and in support of the strategic bequest motive.
Keywords: life insurance, bequests, inheritance and estate taxes
JEL Classification: D64, G22, H24, H31
Suggested Citation: Suggested Citation