Using Life Insurance for Protection and Savings

Have you considered the benefit of having a life insurance policy that will provide a death benefit for your family and save for retirement in one policy?

Whole life insurance is a product that will accomplish these goals and has many sometimes under utilized advantages. A whole life policy has both a death benefit and a cash value benefit. Some life insurance carriers offer whole life policies that are participating, meaning a dividend may be payable in addition to the guaranteed cash value. The beneficiary receives the death benefit when the insured dies income tax free. While the insured is still alive however, the cash value is available to the policy owner who can either withdraw, borrow or surrender the policy for the cash surrender value. The surrendering of the policy for cash value terminates the policy, although strategically withdrawing or borrowing cash values may keep the policy intact albeit with a modified death benefit.

The cash values of a whole life policy accrue income tax-deferred. The higher the income tax brackets of the policy owner, the more attractive the tax-deferred aspect of the cash value buildup within the policy becomes to it's owner. Surrendering of the whole life policy for the cash surrender value or the lapsing of the policy can result in a taxable event. After one of these transactions, the insurance carrier will determine if there was a taxable gain based on the difference between the cash surrender value and the payments made (cost basis). The policy owner would pay the income taxes on any gain, if applicable.

The policy owner can also strategically withdraw and borrow via policy loans against the cash value and dividends to provide a stream of income to supplement retirement. Let's assume a 45 year old male purchased a whole life policy with premium payments for 20 years. The policy would be fully paid up requiring no further premium payments. While the insured is still alive, the policy owner can structure a combination of dividend withdrawals and policy loans from ages 65 - 85 on a tax-free basis within certain guidelines. The policy death benefit would be reduced by the policy loans.

If you are in need of life insurance and also need to diversify your retirement savings, whole life insurance can be an excellent option. Please call me an expert in life insurance discuss this idea or get a free term life quote.


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