mtnoon1[at]netzero.com, you asked:

<< <I> I was recently made a partner at my law firm. </I> >
Congratulations! :-)

<< <I> One of the benefits is a $500,000 whole life insurance policy. I
understand that the annual premium paid by the firm is $5,000. I am 41 years
old and intend to retire at 60. I have two questions: What will be the
estimated cash value of the policy in 20, 25 and 30 years,</I> >
Since whole life policies can be VERY different one from another it's virtually
impossible to make even a ballpark guess. Whole life policies are simply not
all created equal. And it also depends on just what rating class it's being
issued at. So, there are several variables that can make a difference. What
would narrow it down a great deal and would help a little be to know just which
company is issuing the policy.

But if we assume such a policy is a traditional participating whole life from
one of the better mutual type companies (Guardian, Mass Mutual, New York Life,
Northwester Mutual . . . to name a few), you might expect to realize an IRR on
the cash value somewhere between 4% - 6% over those periods of time. But this
too can depend on things like whether or not you're looking at one that's a 20
yr. pay, paid up at 65 or one that payments go to age 100.

So, if I assume payments are being made the entire periods with an IRR of 5%,
in 20 years that would be about $173,600; 25 yrs. - $250,500; 30 yrs -
$348,800.

<< <I> and will the $5,000 premium be taxable to me each year or are there ways
in which employers can structure the policy so that it is not taxable on an
annual basis. </I> >
This is probably even more complex to answer since it's a policy provided by
and paid by the employer. There may be any number issues that have to do with
whether or not it's set up under a split-dollar arrangement or not. Probably
most important is just how the firm is paying the premium and who is the owner
of the policy is really the key. There are so many possibilities I wouldn't
really know where to begin.

In a simple situation where you are the owner of the policy and the firm is
simply paying the $5,000 premium, that premium would be considered taxable
income to you. So that you would not have to realize an additional cost due to
the tax on that amount an employer might increase one's salary to offset
additional taxes so that there's really no cost at all for the benefit. If
it's done this way, the policy and its cash values are then treated in the same
as if you are simply purchasing it on your own.

Then, if you cash in the policy at the end of any of these peirods the amount
in excess of your basis (total premiums paid less what's been paid out to you)
would be subject to ordinary income taxes.

Things become more complicated if the employer retains some ownership of the
policy and/or there is some kind of split-dollar arrangement. These kinds of
things can also affect to what extent the death benefit might be taxable or not
too.

<< <I> I understand that I will probably be able to obtain this information
from the insurance company once the policy goes into effect, but that will
probably be for a few months more and I want to get an idea of the value of the
policy now. </I> >
You might also what to get additional information from the firm's benefits
administrator regarding the ownership of the policy and just exactly how it's
being paid for if you don't already know this. More than likely there's an
insurance agent involved and that agent should be able to easily answer all
these types of questions in detail.

"matt noone" <mtnoon1[at]netzero.com> wrote in message
news:64f08a22.0402210338.2e6d8d38[at]posting.google.com

I was recently made a partner at my law firm. One of the benefits is
a $500,000 whole life insurance policy. I understand that the annual
premium paid by the firm is $5,000. I am 41 years old and intend to
retire at 60. I have two questions: What will be the estimated cash
value of the policy in 20, 25 and 30 years, and will the $5,000
premium be taxable to me each year or are there ways in which
employers can structure the policy so that it is not taxable on an
annual basis. I understand that I will probably be able to obtain
this information from the insurance company once the policy goes into
effect, but that will probably be for a few months more and I want to
get an idea of the value of the policy now.


Hy Matt;

This is a ticklish situation, and I will address it as best I can......

FIRST, one of the main principals of IRS taxation of the Cash Value of any life insurance policy, is that IF the premiums were paid with AFTER TAX DOLLARS, then the Cash Value (up to the TOTAL of ALL premiums paid in up to date), are Income Tax Free. However, IF the premiums were DEDUCTED as an Income Tax EXPENSE, then the ENTIRE Cash Value becomes Income Taxable to the recipient.

SO, if the Firm is using After Tax Dollars (then you would be required to pay the Income Tax due ONLY on the premium,of $5,000, ie. [at] 30% = $1,500 Tax), then the proceeds would be available to you (up to basis) Income Tax Free.

However, If the Firm is using it as a Key Person contract, DEDUCTING the premiums paid, then the Cash Value would belong to the Firm, potentially Income Taxable, with NO Income Tax consequence to you, until they decide to make you a GIFT of the policy.

Kalman J. Lester CLU

I was recently made a partner at my law firm. One of the benefits is
a $500,000 whole life insurance policy. I understand that the annual
premium paid by the firm is $5,000. I am 41 years old and intend to
retire at 60. I have two questions: What will be the estimated cash
value of the policy in 20, 25 and 30 years, and will the $5,000
premium be taxable to me each year or are there ways in which
employers can structure the policy so that it is not taxable on an
annual basis. I understand that I will probably be able to obtain
this information from the insurance company once the policy goes into
effect, but that will probably be for a few months more and I want to
get an idea of the value of the policy now.