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The definitions contained herein are for general information only and are not
designed for use in connection with the interpretation of any insurance policy
or annuity policy issued through Insurance Answer Center.
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Life Insurance Glossary Terms 4 A B C D E F G H I J K L M N O P Q R S T U V W Y
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Tax Deferral
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The payment of income taxes on the gain under a permanent life insurance policy is postponed until the policy is surrendered. The gain is never subject to income tax if the death benefit is paid. Life insurance and annuities are two of the remaining vehicles that are available to legally defer payment of income tax. TEFRA or TEFRA CORRIDOR: New policies sold today will always meet TEFRA requirement. TEFRA provides a criteria that must be met for a policy to qualify as life insurance and be subject to life insurance income tax provisions. If a policy does not qualify as life insurance under TEFRA, it will not be subject to life insurance income tax provisions. This means that the cash value build up may be taxable as ordinary income to the policyowner. In addition, the beneficiary may be required to include any death benefit proceeds as ordinary income subject to income tax in the year of receipt. TEFRA stands for the Tax Equity and Fiscal Responsibility Act of 1982.
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