Prudential Financial and its financial professionals do not give legal or tax advice. Your clients should consult their own advisors.
- 1Death benefit proceeds are generally federal income tax-free pursuant to IRC §101(a). Supplemental income is accessed through loans and withdrawals which when left unpaid reduce cash values and death benefits. Loans are charged interest; they are usually not taxable. Withdrawals are generally taxable to the extent they exceed basis in the policy. Loans that remain unpaid when the policy lapses or is surrendered while the insured is alive will be taxed immediately to the extent of gain in the policy. For policies that are Modified Endowment Contracts (MECs), distributions (including loans) are taxable to the extent of income in the policy; an additional 10% federal income tax penalty may apply.
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