Most people think of life insurance as a tool for end of life planning.
A key advantage of life insurance is that the death benefit is transferred to the beneficiary tax-free. Your beneficiary can make complete use of the benefit to pay off debt, replace your income and meet other needs during these trying times.
Tax advantages of whole life insurance
Whole life insurance policies have the ability to gain cash value that is not taxed until it is taken out or withdrawn. This may not seem like a big deal. However, the table below highlights why this is so important.
As you can see, when the benefit is not taxed and more money stays in the policy, the benefit increases much faster.
After 10 years, the value of the tax-deferred investment is more than double what it would have been had it been taxed each year.
The example above shows the advantages of tax-deferred growth. Because more of the money stays in the policy, it grows in value faster. This is not the only advantage.
Dividends on such a life insurance policy are usually tax-free and are not counted as income on the policyholder’s tax return. These dividends can be used to pay the policy’s premium, keeping the insurance in place without any monthly expense.
Life insurance policies with cash value can be tools for financial planning. They can help to supplement retirement income, pay off a large debt, such as a mortgage, pay for a college education for a child or grandchild, or pay for after life expenses.
To find out more about structuring the appropriate life insurance for you needs, contact us today.
Leave a Reply