Collateral Life Insurance

A lender may require you to have life insurance for the amount of a loan. An existing policy can be used or a new policy can be purchased.

There is a tax deduction for the lesser of the {premium paid in the year} and the {NCPI} provided

  1. the loan is for investment purposes (not personal use)
  2. the lender is a financial institution (bank, insurer, trust company)
  3. the lender requires assignment of the policy as a condition of the loan
  4. the tax deduction is reasonable in the circumstances

Note: prorate the tax deduction in the ratio of the loan balance to the life insurance

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