Permanent life insurance offers individuals a variety of benefits. One of the key benefits is a tax-deferred benefit. As with all life insurance policies, this coverage pays a death benefit at the time of a person's death. This does not change.
However, it can also provide you with some financial support while you are alive. Work with your life insurance agent and estate planner to take advantage of this feature. Many times, individuals do not realize they have this benefit.
What Does Tax-Deferred Mean?
The term often refers to investments. For example, some retirement accounts allow you to enjoy the tax-deferred status. Here's why.
With this type of life insurance policy, you invest in it before taxes coming out of your paycheck. It is income you receive to cover the premium costs of the policy. The money goes to the policy directly. There, the value grows. In many permanent life insurance policies, the value grows based on interest. Some companies provide a very specific amount of interest or value growth. Others will grow based on market conditions.
The money in this account continues to grow. You usually do not pay interest on it. You do not pay taxes on it either. If you were to withdraw some or all of that money during retirement, you would then pay taxes on it. This is tax-deferred – meaning later. The benefit here is that you may be in a significantly lower tax bracket when you are older. That means you will likely pay less tax.
Keep in mind that the death benefit of a life insurance policy has no tax. That is, when you die, your beneficiary receives the tax benefit amount in whole. They do not pay taxes on those funds when they receive them. They do not pay income taxes on the funds either. This is a key tax advantage for anyone who obtains life insurance.
To learn more about tax benefits associated with life insurance policies, work with a local tax professional. Find out what you can expect. Discuss various forms of life insurance. Each one offers a different potential savings option. The more information you have about these policies, the more likely you are to find one that fits your need. And, when you do, you may benefit during retirement, too. Permanent life insurance can be an excellent investment.
For more information, contact one of our agents today at 269.441.5156. We can help you determine the life insurance that's best for you.
Also Read: Why Every Adult Should Purchase Life Insurance or Life Insurance for the Stay-at-Home Spouse