Can I use an existing life insurance policy to provide for the repayment of an outstanding mortgage loan?
Yes. Lenders don’t usually require that you buy a new mortgage protection term insurance policy. An existing policy, either term or cash-value life insurance, can be used for many purposes, including paying off an outstanding mortgage loan balance in the event of your death. What are the tax issues with life insurance cash values, dividends, and death benefits? The “interest build-up” portion of the annual increase in the policy’s cash value is not taxed. Dividends generally are considered to be a “return of premium” and are not taxable. Although life insurance death proceeds will not typically be subject to income taxation, they may be subject to federal estate taxation. If you own part or all of the policy when you die, those can be included in your gross estate for federal estate tax purposes. State inheritance taxes and federal gift taxes may also apply to life insurance policies/proceeds under specific circumstances. You should contact your tax adviser regarding questions about po
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