More people should consider their life insurance policies when tax season approaches. Although life insurance helps protect loved ones when you pass away, it can also help you and your beneficiaries manage tax consequences. Learn more about the income tax advantages of life insurance.
The Death Benefit Typically Pays Out Income Tax-Free
This is a clear advantage for your beneficiaries. Life insurance payouts can be hefty. So, avoiding a significant tax bite can bring consequences. By contrast, the government will generally tax most retirement plan proceeds when taken by beneficiaries. In addition, there are examples where federal and state estate taxes can provide a life insurance payout. If your life insurance plan takes part of a significant estate, it may be worthwhile to talk to a financial professional. Contact us today at 410-394-9617!
The Total Cash Build-Ups on a Tax-Deferred Basis
Moreover, permanent life insurance accumulates cash value over time as you pay premiums. Regarding whole life insurance, the cash value grows at a rate that isn’t impacted by market conditions. Fortunately, other permanent insurance types enable different investment options. One of the income tax advantages of life insurance is that the cash value growth is on a tax-deferred basis. This means that this money grows without the IRS taking anything. Overall, this can essentially impact your future.
You Can Touch Your Policy’s Cash Value on a Tax-Advantaged Basis
Money borrowed or taken from the life insurance plan’s cash value doesn’t subject to taxes up to the cost basis. Additionally, the cost basis is when the premiums are paid into the policy. Plus, accessing your life insurance’s cash value minimizes its value and death benefit and boosts the chance of a policy lapse. So, the policy is taxable when it lapses with a significant loan excessing the cost basis.
Beyond these income tax advantages for life insurance, retirement rules are in flux nowadays. Ultimately, life insurance plays an outstanding role in that strategy. Discover more about these tax advantages by calling us at 410-394-9617!
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