What happens when a Death Claim is processed on a TSA, which has active loan(s)?

The beneficiary has two options to choose from when an active loan exists on a contract: 
  • Option 1: The beneficiary can pay off the loan and then get the death benefit. If the beneficiary is a spouse, 20% will be withheld from the benefit.
  • Option 2: Forfeit the loan and then the beneficiary receives the benefit. If the beneficiary is a non-spouse, the loan forfeiture is taxable to the owner's estate and then only the proceeds are taxable to the beneficiary. If the beneficiary is a spouse, the loan forfeiture and the benefit are both taxable to the beneficiary.
The information contained herein should not be construed as tax planning advice. Please consult a qualified tax advisor for such advice.

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