<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=314834185700910&amp;ev=PageView&amp;noscript=1">

New Update: Healthcare Costs Increasing by Over 60% in Some States. Will you be impacted?

Learn More

Tax Planning with Life Insurance For Lumen Employees

image-table

Healthcare Provider Update: Healthcare Provider for Lumen Lumen Technologies offers healthcare benefits through various providers, with a significant partnership with Cigna Healthcare for their employee health plans. Cigna provides a range of coverage options including medical, dental, and vision care, tailored to meet the diverse needs of Lumen's workforce. Healthcare Cost Increases in 2026 In 2026, healthcare costs are projected to experience significant increases, largely driven by the expiration of enhanced federal premium subsidies under the Affordable Care Act (ACA). As insurers anticipate premium hikes of around 20% on average, many states are reporting increases of over 60% in some plans. This perfect storm of rising medical expenses, coupled with increased demand for services and labor shortages, could push out-of-pocket premiums for 92% of ACA enrollees up by more than 75%. Consequently, individuals may face considerable financial barriers to accessing adequate healthcare coverage moving forward. Click here to learn more

What Is Tax Planning With Life Insurance?

Having life insurance can help you achieve a variety of objectives, and tax planning in conjunction with life insurance can minimize the tax implications of your life insurance decisions. Depending on the type of insurance coverage you choose, the tax planning tools involving life insurance will vary. In order to make informed insurance tax planning decisions, Lumen clients must first comprehend topics such as the tax-deferred accumulation of cash value, the taxation of withdrawals, proceeds, loans, and dividends, and the premium deductibility. In addition, your insurance tax planning should include an understanding of the benefits and drawbacks of simple life insurance, modified endowment contracts, personal life insurance trusts, business use of life insurance, and life insurance as part of a charitable giving plan.

What Is The Tax-Deferred Buildup of Cash Value?

Even if the policy terminates due to a mortality claim, the cash value increase in an insurance policy is generally not taxable income as long as the policy remains in force. Therefore, the accumulation (increase) of cash value represents deferred income.

What Are The General Tax Rules For Life Insurance?

A contract cannot be considered a life insurance contract (and thus eligible for favorable tax treatment) for federal income tax purposes unless it is treated as a life insurance contract under applicable state law and meets either the cash value accumulation test or the cash value corridor test.

Depending on the form of distribution (i.e., a lifetime distribution, death proceeds, or dividends), the tax treatment of your life insurance policy will vary. For federal income tax purposes, lifetime distributions (other than loans) from such cash-value life insurance policies are generally treated as first-in, first-out (FIFO) distributions. In other terms, the money you withdraw is initially considered your nontaxable basis or investment in the contract. Only distributions in excess of your basis are considered taxable.

Distributions

We would now like to discuss distribution categories with our Lumen clients. A lifetime distribution is any payment of the cash value of a life insurance policy made during the insured's lifespan, as opposed to the payment of the proceeds after the insured's death. There are three principal categories of lifetime distributions: loans, partial surrenders, and complete surrenders.

  • The policyholder obtains a loan from the insurance company using the cash surrender value of his or her policy as collateral. Until the debt is repaid, the loan balance reduces both the cash surrender value of the policy and the death benefit. Because they are not considered distributions for tax purposes, policy loans typically do not trigger an immediate income tax liability for the policy owner. As long as your policy remains in force, the loan proceeds are not considered taxable income. However, Lumen clients should be aware that if their policy lapses or they surrender the policy, they will be required to include the outstanding loan proceeds in their gross income to the extent that the loan proceeds exceed their initial investment in the policy.

Example(s):  Consider a life insurance policy with the following values: cash value of $15,000, owner's basis of $14,000, and unrealized gain of $1,000. If you borrow $15,000 from your life insurance policy, the $1,000 unrealized gain will not be subject to taxation at this time. At the time of your demise, your insurance company will deduct any outstanding loan balance (plus interest) from the death benefit and pay your beneficiary the remainder tax-free. (The date the policy was issued is irrelevant for loans.)

  • In many instances, you can withdraw and retain all or a portion of the cash value accumulation in your policy. This is known as a partial surrender, and it reduces the policy's cash surrender value and mortality benefit. A partial renunciation is generally taxed on a first-in, first-out (FIFO) basis. Consequently, only quantities received in excess of your basis will be taxed.
  • Complete renunciation is the termination of an insurance policy. The insurance company will typically send you a check for the net cash surrender value at this time. The difference between the cash surrender value of the policy (plus any outstanding loans) and your basis in the contract is considered taxable income for tax purposes.

Death Proceeds

The proceeds from a life insurance policy paid upon the insured's demise are generally not included in the recipient's taxable income; they are received tax-free. Amounts payable upon the insured's death are excluded, regardless of whether they represent the return of premiums paid, an increase in the policy's value due to investments, or the funeral benefit feature. It makes no difference whether the life insurance proceeds are received in a single sum or in some other manner. (However, any interest paid in conjunction with the life insurance payout is generally taxable.)

Tip: Additionally, Lumen clients must be aware of the estate and gift tax implications of life insurance. In general, a policy's proceeds are included in the insured's estate if:

  • The proceeds were payable to or for the benefit of the insured's estate; or the decedent transferred the policy for less than fair consideration (value) within three years of his or her demise; or 
  • the proceeds were payable to or for the benefit of the insured's estate.
  • At the time of death, the insured held all incidents of ownership, such as the right to alter the beneficiary.

The fair market value of your interest in a life insurance policy at the time of the gift may be subject to gift taxes if you give it away.

Dividends

A dividend is the quantity of your premium that is returned to you if your insurance company achieves a lower-than-expected mortality rate among policyholders. If you are a 55-75-year-old or older Lumen employee, you should be aware that life insurance dividends are typically regarded as a return on investment and are not considered taxable income to the policy owner. Unless they surpass the total cumulative premiums paid on the policy. It makes no difference whether dividends are received in cash, left with the insurance company to prepay premiums or accumulate, or received in some other form. Nonetheless, if you leave these dividends on deposit with your insurance company and they accrue interest, you must include the interest as taxable interest income. Generally speaking, life insurance premiums are not tax deductible.

Featured Video

Articles you may find interesting:

Loading...

What About Modified Endowment Contracts?

The Internal Revenue Code (IRC) defines the modified endowment contract (MEC) as a special category of life insurance contract. MECs are subject to special tax regulations under the IRC. In general, loans and partial surrenders of MECs are subject to immediate taxation if the financial value of the contract exceeds the premiums paid. In addition, withdrawals and loans from a MEC prior to age 5912 may be subject to a 10% tax penalty.

What About Personal Life Insurance Trusts?

Sometimes it makes sense to transfer an existing life insurance policy into a trust or have the trust purchase a new life insurance policy. There are two categories of trusts: irrevocable and revocable. These two categories of trusts are taxed differently.

Irrevocable Life Insurance Trust

The primary advantage of this form of trust is that the proceeds from your life insurance policy will not be included in your estate for estate tax purposes after your death. This type of trust is frequently used if your assets will exceed the applicable exclusion amount at the time of your demise, or if you wish to control the timing of a beneficiary's distribution of funds. Lumen clients should also bear in mind that if their trust beneficiaries are granted 'Crummey powers,' their lifetime transfers of cash into the trust (to purchase a life insurance policy) may qualify for the annual gift tax exclusion.

Revocable Life Insurance Trust

The assets in a revocable life insurance trust must be included in the decedent's taxable estate. This could have negative estate tax implications. However, this form of trust can be useful if your beneficiaries are minor children and you wish to control the timing of the insurance proceeds' distribution.

Regarding Business Insurance, What Are Some of The Planning Vehicles?

Businesses frequently utilize a variety of insurance policies, and the tax treatment varies based on the form of policy. Life insurance in the form of group insurance, key employee coverage, split dollar, or corporate-owned policies may be utilized as an employee benefit and/or to achieve specific business objectives. Moreover, property, casualty, and liability insurance policies are utilized to protect against natural disasters and litigation. In addition, insurance can be utilized to finance retirement plans and buy-sell agreements. You may be concerned about both the deductibility of premiums and the taxation of proceeds if you are a business proprietor.

In general, no deduction is allowed for premiums potentially paid by a business like Lumen on any life insurance policy covering the life of any officer or employee of the employer, or of any person financially interested in any trade or business carried on by the employer, when the employer, like Lumen, is a direct or indirect beneficiary of the policy. Therefore, an organization cannot deduct insurance premiums used to finance buy-sell agreements and retirement plans. Additionally, our Lumen clients should be aware that the premiums paid by a business for critical employee coverage and split-dollar life policies are typically not tax deductible. Nonetheless, a business can typically deduct the cost of group life insurance it provides to its employees, as well as the cost of property, casualty, and liability insurance.

Despite the absence of a deduction for life insurance premiums, life insurance can be a useful instrument for many businesses. In most cases, life insurance proceeds are tax-free. In addition, the cash value accumulation on a life insurance policy is generally not taxed currently, although in certain circumstances this accumulation could subject the business to the alternative minimum tax (AMT). Typically, withdrawals and advances are treated favorably.

Withdrawals of cash value from a life insurance policy are generally first regarded as taxable distributions of earnings on the contract. Withdrawals in excess of the contract's earnings will be regarded as a nontaxable recovery of the contract's basis. In contrast, loans are not regarded as distributions. Consequently, they are not immediately subject to taxation. In some instances, policy loan interest may be tax deductible.

For business purposes, the deduction for casualty losses is regarded differently than for individual purposes. A casualty is, for tax purposes, a loss of property caused by a fire, storm, shipwreck, or other abrupt catastrophe that causes direct damage. Insofar as the quantity of money or property a business receives as reimbursement for a casualty loss is less than the property's adjusted basis, the business can deduct the entire difference. If the business chooses not to file a claim, no loss deduction will be allowed to the extent that such losses are covered by insurance.

How Can Tax Planning With Life Insurance Help You With Charitable Giving?

You may have a strong desire to support your favored or charities. At the same time, you may be concerned about leaving your family or other loved ones with sufficient assets. Using life insurance as part of your charitable giving strategy may enable you to achieve both of the aforementioned objectives and provide you with tax benefits.

Naming the Charity as Beneficiary

If you designate a charity as the beneficiary of your life insurance policy, the proceeds will not be included in your estate for tax purposes. Your estate will be eligible for a charitable deduction for estate tax purposes, but you will not be eligible for a deduction on your income tax return. This strategy is suitable for our Lumen clients who wish to retain access to the policy's cash surrender value during their lifetime, but donate the proceeds from the death benefit to charity.

Transferring Policy Ownership to Charity

You may also transfer ownership of your life insurance policy to a charity or pay the premiums on charity-owned life insurance policies. You may be eligible for a limited income tax deduction if you meet the requirements. The gift tax charitable deduction exempts from gift tax an explicit donation of a life insurance policy to a charity.

Gift of Cash Surrender Value

You cannot claim a charitable deduction on your gift tax return if you assign only the cash surrender value of the policy to a charity and retain the right to designate the beneficiary and assign the remainder of the policy.

Tip:  Life insurance can also be used in conjunction with charitable remainder trusts.

What is the difference between a partial surrender and a complete surrender of a life insurance policy in terms of tax implications?

A partial surrender of a life insurance policy refers to the withdrawal of a portion of the policy's cash value accumulation while leaving the policy in force. The amount withdrawn is generally taxed on a first-in, first-out (FIFO) basis, which means that only amounts received in excess of the policyholder's basis (the total amount of premiums paid) are subject to taxation.

In contrast, a complete surrender refers to the termination of the life insurance policy, in which the policyholder receives the net cash surrender value of the policy (cash surrender value minus any outstanding loans). The amount received in excess of the policyholder's basis is considered taxable income for tax purposes.

In summary, a partial surrender only withdraws a portion of the policy's cash value, while leaving the policy in force, and is taxed on a FIFO basis. A complete surrender terminates the policy and results in the policyholder receiving the net cash surrender value, which is taxable on the amount received in excess of the policyholder's basis.

Conclusion

Imagine you are a seasoned traveler, preparing to embark on a new journey to a foreign land. You've done your research and have an itinerary in place, but you're not quite sure what to expect when you arrive. Will the language barrier be a challenge? Will the customs and traditions be unfamiliar? Will you be able to navigate the terrain? Retirement can be a lot like traveling to a new place. It's an exciting adventure, but it can also be daunting and uncertain. You may have a plan in place, but there are still many unknowns. Will your savings be enough to sustain you? How will you adjust to a new routine and lifestyle? Will you be able to navigate the healthcare system? Just like when traveling to a foreign land, it's important to do your research and prepare ahead of time. Seek advice from those who have gone before you and learn from their experiences. Consider working with a financial advisor to help you plan and manage your retirement funds. And remember, just like when traveling, unexpected surprises and challenges may arise, but with careful planning and preparation, you can enjoy a successful and fulfilling retirement journey.

What specific retirement benefits does Lumen Technologies, Inc. offer to employees who have dedicated many years of service to the company? In what ways do these benefits reflect Lumen's commitment to taking care of its employees post-retirement, and how do they align with the company's overall values regarding employee welfare and support?

Retirement Benefits: Lumen Technologies offers its employees retirement benefits that include 401(k) plans and pension options, reflecting its commitment to post-retirement welfare. These benefits are aligned with Lumen’s values of providing security and care for its employees after years of dedicated service. They are designed to ensure long-term financial stability for retirees, aligning with Lumen's mission of enhancing employee well-being​(Lumen Technologies Inc_…).

As an employee of Lumen Technologies, Inc., how can you effectively plan for your retirement to maximize your benefits? What factors should you consider, and what resources does Lumen provide to help employees navigate the complexities of retirement planning to ensure a secure financial future?

Retirement Planning: As an employee of Lumen Technologies, you should consider factors like years of service, retirement plan contributions, and projected retirement age to maximize your benefits. Lumen provides resources such as retirement calculators and financial planning tools to help employees navigate these complexities and secure their financial future post-retirement​(Lumen Technologies Inc_…).

How do Lumen Technologies, Inc.'s retirement plans compare with the industry standards? In which areas can Lumen improve its offerings to remain competitive and retain top talent while ensuring the financial security of its employees in their retirement years?

Comparison with Industry Standards: Lumen’s retirement plans are competitive within the industry, but improvements could be made in areas such as enhanced pension offerings or matching contributions in the 401(k) plans to attract and retain top talent. This would ensure financial security for employees in their retirement years while keeping Lumen competitive in the market​(Lumen Technologies Inc_…).

Can you explain the role of the HRCC (Human Resources and Compensation Committee) at Lumen Technologies, Inc. in overseeing employee retirement plans? What measures does this committee take to ensure that retirement benefits remain aligned with the organization’s goals and employee expectations?

HRCC Role in Retirement Plans: The Human Resources and Compensation Committee (HRCC) at Lumen oversees retirement benefits to ensure they align with the company’s goals and employee expectations. The committee reviews and updates the plans regularly, ensuring they remain relevant and meet both the company’s financial objectives and the needs of its employees​(Lumen Technologies Inc_…).

What changes to federal regulations or IRS limits in 2024 could potentially impact Lumen Technologies, Inc.'s retirement plans? How should employees prepare for these potential changes to ensure they are fully utilizing their benefits?

Federal Regulation Changes in 2024: Changes to IRS limits or federal regulations, such as adjustments to contribution caps or tax deductions, could impact Lumen’s retirement plans. Employees should stay informed about these changes to fully utilize their benefits, and Lumen’s HR team provides updates and resources to assist in navigating these regulatory adjustments​(Lumen Technologies Inc_…).

How does Lumen Technologies, Inc. ensure that all employees are aware of their retirement options? What communication strategies does the company employ to make sure employees understand the specifics of their retirement benefits and the necessary steps for enrollment or participation?

Employee Awareness of Retirement Options: Lumen employs a variety of communication strategies, including workshops, online resources, and HR consultations, to ensure that employees are aware of their retirement options. Regular updates and easy access to information help employees understand the steps needed for enrollment or participation​(Lumen Technologies Inc_…).

In the event of unforeseen circumstances, such as death or disability, how does Lumen Technologies, Inc. protect the retirement benefits of its employees and their families? What provisions are specifically designed to support employees and their loved ones during these challenging times?

Protection of Retirement Benefits: In cases of death or disability, Lumen has provisions to protect retirement benefits for employees and their families. Survivor benefits and disability accommodations are designed to provide continued financial security for employees and their loved ones during challenging times​(Lumen Technologies Inc_…).

For employees nearing retirement at Lumen Technologies, Inc., what strategies should they adopt to ensure they transition smoothly out of the workforce? What resources or programs does Lumen offer to assist employees during this significant life change?

Transitioning to Retirement: Employees nearing retirement at Lumen can benefit from financial planning tools and transition programs offered by the company. These resources help ensure a smooth exit from the workforce and provide the necessary support for this significant life change​(Lumen Technologies Inc_…).

How is Lumen Technologies, Inc. addressing the challenges of an aging workforce regarding retirement readiness? What initiatives or programs are in place to help older employees prepare for retirement and to facilitate knowledge transfer to younger employees?

Addressing an Aging Workforce: Lumen is addressing retirement readiness through programs that help older employees prepare for their transition into retirement. These initiatives include financial education, retirement planning resources, and mentorship programs to facilitate knowledge transfer to younger employees​(Lumen Technologies Inc_…).

For employees who wish to learn more about the retirement benefits and planning processes offered by Lumen Technologies, Inc., what contact methods are available? How can employees reach out to the appropriate department for detailed inquiries and assistance regarding their retirement options?

Contact Methods for Retirement Inquiries: Employees wishing to learn more about Lumen’s retirement benefits can reach out to the HR department via phone, email, or the company’s internal benefits portal. Lumen’s HR team provides detailed assistance regarding retirement options and planning​(Lumen Technologies Inc_…).

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
Lumen Technologies offers both a traditional defined benefit pension plan and a defined contribution 401(k) plan. The defined benefit plan provides retirement income based on years of service and final average pay. The 401(k) plan features company matching contributions and various investment options, including target-date funds and mutual funds. Lumen provides financial planning resources and tools to help employees manage their retirement savings.
Restructuring and Layoffs: Lumen Technologies is implementing a restructuring plan that includes laying off approximately 2,500 employees to reduce costs and improve operational efficiency (Source: Wall Street Journal). Strategic Focus: The company is shifting its focus towards higher-margin services like cloud computing and cybersecurity. Financial Performance: Lumen reported a 4% increase in net income for Q2 2023, reflecting the success of its strategic initiatives (Source: Lumen).
Lumen Technologies grants RSUs that vest over time, converting into shares upon vesting. Stock options are also available, allowing employees to purchase shares at a fixed price.
New call-to-action

Additional Articles

Check Out Articles for Lumen employees

Loading...

For more information you can reach the plan administrator for Lumen at 2500 w utopia rd Phoenix, AZ 85027-4129; or by calling them at 623-582-7000.

https://www.lumen.com/documents/pension-plan-2022.pdf - Page 5, https://www.lumen.com/documents/pension-plan-2023.pdf - Page 12, https://www.lumen.com/documents/pension-plan-2024.pdf - Page 15, https://www.lumen.com/documents/401k-plan-2022.pdf - Page 8, https://www.lumen.com/documents/401k-plan-2023.pdf - Page 22, https://www.lumen.com/documents/401k-plan-2024.pdf - Page 28, https://www.lumen.com/documents/rsu-plan-2022.pdf - Page 20, https://www.lumen.com/documents/rsu-plan-2023.pdf - Page 14, https://www.lumen.com/documents/rsu-plan-2024.pdf - Page 17, https://www.lumen.com/documents/healthcare-plan-2022.pdf - Page 23

*Please see disclaimer for more information

Relevant Articles

Check Out Articles for Lumen employees