Generally speaking, stimulus checks will not be affected by life insurance.  With the economic turmoil created by the 2019 Novel Coronavirus (COV-19), many have lost their jobs and the stock market has taken a huge hit as of this writing at the end of March 2020.  To help stabilize the economy and provide a financial buffer for the American people, the United States government is sending stimulus payments to most American citizens.  With the confusion around who gets a check and who does not, you may be wondering if your life insurance policy affects your stimulus check.

Terms of the payments call for individuals making $75,000 or less to get checks for $1,200, with payments being reduced by $5 per $100 earned up to an income of $99,000.  Anyone who makes more than this will not receive a check.  For married couples, the figures double so couples making $150,000 or less receive payment for $2,400.  There will also be an additional payment of $500 per child.  Income will be based upon 2019 adjusted gross income, or if no tax return was filed yet then 2018 adjusted gross income.  But are life insurance proceeds considered income?  What about loans or dividend payments?  There are different ways to access money from a life insurance policy.  Whether or not money you received from life insurance will affect your check depends upon which method gave you the money and what the timing of the payments was.

Keep in mind that the source of how the IRS will determine your income for stimulus check purposes is important because if you already filed a 2019 tax return they will use this information.  Anything affecting your adjusted gross income (AGI) in 2019 can affect your stimulus payout.  If you did not file a 2019 tax return yet (keep in mind the federal deadline was extended to July 15, 2020), the IRS will use your 2018 tax return AGI.  If you did not file a 2018 tax return either, they can use your social security earnings reported by your employer in 2019.  To understand if money from a life insurance policy will affect your stimulus check, first make sure that you received money from life insurance in the same year that the government will be basing your payment on.

Death Proceeds

Death proceeds do not affect your stimulus check because they are not considered part of your adjusted gross income.  They are not taxable and therefore not considered income.  If you received a life insurance payout in 2018 or 2019 you do not need to worry about it affecting your stimulus check.  Certain exemptions do exist, but this is mostly for people who invest in life insurance contracts in what is called a viatical settlement.  If your payout included interest (it may include some depending upon how long the life insurance company held your money and the laws in your state), the interest will be added to your AGI.

Surrender of Permanent Policy

A surrender of permanent life insurance may be included in your taxable income, but only if there is a taxable gain on the policy.  This means that if you got back more in the surrender plus any loans outstanding than you paid in total premiums in the lifetime of the policy, the positive difference is a taxable gain.  Your adjusted gross income would include the taxable gain and be subject to the limits described above.

Dividend Payments

Dividend payments are usually not taxed because they are treated as a return of premium payments.  If you receive more in dividend payments than you paid in premium, they will become taxable as income.  This is not a problem for most people.  Usually, you need to own a life insurance policy for decades for dividend payments to exceed premiums paid.

Are Life Insurance Loans Included In AGI?

Life insurance loans are not taxable as long as the life insurance policy remains in force and the policy is not a modified endowment contract.  Even a large loan will not affect your stimulus check as long as the policy is not a MEC and you did not surrender or lapse the policy in the same year.  Only the portion of the loan which is greater than the sum of all premiums paid is subject to tax though, so you still are not likely to have a loan affect your stimulus check even if the policy was surrendered in the same year.

How much Stimulus Money Will I Get?

Here is a table showing how much money you will receive from the 202o Coronavirus Stimulus checks, by adjusted gross income (AGI).

Adjusted Gross IncomeCheck Size- SingleCheck Size- Married
Note that each child adds $500

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