1. No Limit on the Amount Purchased
In comparison to qualified plans, there is no limit on the amount of life insurance that can be purchased subject only to the underwriting limitations of issuing life insurance carriers.
Using cash value life insurance as a tool to save for the future and to generate supplemental retirement income are valuable benefits in a world where households need to save more as corporate pension plans disappear.
2. Tax Deferral on Earnings
Permanent life insurance policies can generate cash value over time as premiums are paid and excess cash beyond the policies’ cost is generated. All cash income earned is not taxed currently and is able to earn interest on the taxes not currently paid. As we face the prospect of increasing future income tax rates, this benefit could become even more valuable.
3. Income-Tax Free Death Benefit
One of the most forgotten tax benefits of a life insurance policy is that the death benefit is income-tax free. Beneficiaries receive the policy’s death benefit, usually in a lump sum, and don’t have to report the payout as taxable income.
They can use it as they please. The fact that the payment is received without any federal or state income taxes multiplies its value to the beneficiary.
Keep reading for the next 3 forgotten tax benefits of life insurance.