Your Accountant Needs to Know Three Things About the Policy

A properly funded, non-MEC policy generates no 1099 in a normal year. Cash value growth isn't reported, premiums aren't deductible on a personal policy, and death benefits are generally income-tax-free. So there's nothing to hand your preparer and nothing for them to do, which is why a lot of them have never had to think about it.

Three situations change that, and all three are ones you know about before the return gets filed.

The first is a policy owned by a business or paid with business dollars. Premiums on a policy where the business is the beneficiary aren't deductible, and getting that wrong is a common correction. Employer-owned policies also carry a notice and consent requirement under section 101(j) that has to be satisfied before the policy is issued, and missing it can make the death benefit taxable. That paperwork is not something you can fix later.

The second is a withdrawal or a surrender. Take money out above your cost basis and the excess is ordinary income, and the carrier sends a 1099-R. Basis is generally the premiums you've paid, and the carrier will tell you the number if you ask. Preparers see a 1099-R and treat it like a retirement distribution unless somebody explains what it is.

The third is anything involving a MEC. If a policy is classified as a modified endowment contract, distributions come out gain first instead of basis first, and there's a 10% penalty before 59 and a half. Loans from a MEC are treated as distributions too, which catches people who assumed a policy loan is never taxable. Your carrier's annual statement flags MEC status. It's usually one line.

There's a fourth item that isn't tax and belongs in the same conversation. If a trust owns the policy or is the beneficiary, the trust may have a filing requirement of its own, and that gets coordinated between your attorney and your CPA rather than either one alone.

What to hand them each year: the annual policy statement, any 1099-R, and a one-line note about whether anything moved. That's a five-minute email and it prevents the version of this where a preparer guesses.

I'm a licensed insurance broker, not a CPA or an attorney. What I can do is get you the policy documents and the carrier's numbers so the people who do handle the return are working from what's actually in the contract.