|  | Healthcare Industry | Health Insurance

Are Payouts From a Cancer Policy Subject to Income Tax?

Cancer is one of the leading causes of death in the United States, and the medical treatment leading up to it can be extremely costly. To protect against these costs, you can purchase cancer insurance. Cancer insurance can provide you with a lump-sum payment if you are diagnosed with cancer. If you receive benefits from this type of policy, understand how it impacts your tax liability.

  1. Cancer Policy Payments

    • When you purchase cancer insurance, it can provide you with payments in a few different ways. Some policies pay the medical facility when you are hospitalized for cancer-related purposes. Other policies pay the medical facility when you need chemotherapy or some other type of treatment. In some cases, the insurance policy will provide you with a cash payment so that you can handle the payments to the medical facilities on your own. You may even be able to pay for expenses unrelated to medical bills with the payout that you receive.

    Cash Payment Tax Considerations

    • When you receive a cash payout from the cancer insurance policy, you may be concerned that this will add to your total income for the year and increase your tax liability. When you get this type of payment, it should not add to your taxable income. This means that the amount you receive will not increase your tax liability for the year. Since you pay the premiums with after-tax dollars, you do not have to worry about tax liability when you receive benefits.

    Cash Value

    • In some cases, cancer insurance policies have an investment component that grows a cash value. With this type of policy, you pay premiums and part of your money goes into an investment account. The investment can grow depending on the performance of the securities. If you take a distribution from the cash value of your policy and it exceeds the value that you put into the policy, you would have to pay taxes on that amount.

    Loans

    • Another way that you could get a cash payment from a cancer policy is to borrow against it. Some cancer policies may provide you with an option to take out a loan against the cash value. When you borrow money from your policy, you do not have to pay taxes on the amount that you take out. Since it is a loan and you are expected to pay the money back, you are not making anything from borrowing.

Health Insurance - Related Articles