A “reportable policy sale” refers to the transfer of ownership of a life insurance policy in exchange for valuable consideration (e.g., money or something else of value) where the purchaser has no substantial family, business, or financial interest in the insured individual. This sale is subject to specific reporting rules under the Tax Cuts and Jobs Act (TCJA) of 2017.
Key Aspects of a Reportable Policy Sale
- Ownership Transfer: The policyholder sells their interest in a life insurance policy to another person or entity.
- No Substantial Interest: The buyer does not have a pre-existing substantial interest in the insured person, such as a familial or business relationship.
- Valuable Consideration: The sale involves an exchange for value, not a gift or inheritance.
Reporting Requirements
When a reportable policy sale occurs:
- The buyer must file Form 1099-LS, Reportable Policy Sale, to inform the IRS about the transaction, including details of the sale.
- The insurance company must file Form 1099-SB, Seller’s Statement of Life Insurance Policy Sale, to report the seller’s basis and other policy details.
Examples of Reportable Policy Sales
- A policy sold to an investor or a life settlement company.
- A sale as part of a viatical settlement agreement where the buyer is not a licensed viatical settlement provider.
