A. Life insurance is known for its death benefit, but most people don’t realize life insurance also provides powerful lifetime retirement and tax benefits.
Life Insurance's Retirement Benefits
A permanent life insurance policy can double as a retirement savings account, because funds in a permanent life insurance product can be accessed for retirement use, but without the worry about what future tax rates will be.
This is a big deal, because if the funds were in an IRA, distributions would not only be taxable (in a traditional IRA), but that increased income could trigger other so called “stealth taxes.”
Life Insurance's Tax Benefits
If set up properly, there is no tax impact when accessing funds in a permanent life insurance policy. But if funds were in an IRA and accessed, there would be hidden tax increases in the form of phased-out deductions, tax credits, exemptions and other benefits as income increases. For example, an income increase from an IRA distribution could cause more Social Security benefits to be taxable or the trigger the 3.8 percent additional tax on net investment income from capital gains, interest and dividends.
In Summary
Accessing funds from a life insurance policy are tax-free, they keep taxable income and taxes lower in retirement. These are valuable lifetime benefits, in addition to the death benefit.