Glossary
Phantom Income Taxation
- happens when a premium finance lender forgives or cancels a premium finance loan because of a borrower's inability to repay the loan. Example: a borrower experiences a financial hardship and is unable to refinance or repay their premium finance loan and therefore is forced to sell their life insurance policy to generate the funds to repay the loan. If the sale proceeds are insufficient to retire the principal debt from the premium finance loan, and the lender agrees to cancel the missing balance, the IRS treats the forgiveness or cancellation of the outstanding balance or remaining debt as taxable income.
It is the intent of Premium Finance to provide accurate and complete information regarding the definitions contained within the glossary of our website and although every effort has been made to ensure the accuract or completeness of this information, Premium Finance direct does not warrant or represent the accuracy or completeness of this information, but rather intends that this information be used as an informal resource guide. Most importantly, it is recommended that you consult with your insurance carrier(s) and your own insurance, legal and tax professionals regarding questions regarding new or existing life insurance coverage.