Though there are many reasons why life insurance is a good investment, one of the most attractive qualities is that life insurance is tax-free! Therefore, when the policy is finally used, whether as a death benefit or as income replacement later in life, your life insurance payout cannot be taxed! One of our life and financial experts, Criss Crombie, is here to tell you more…
Tax-Free Death Benefit
As stated above, one of the most beautiful things about life insurance is that the payout cannot be taxed. As our expert Criss put it, “Say you buy a million-dollar life insurance policy. Then, you would pay the life insurance company $100/month in premiums for that policy. Once you die, your family gets a million dollars, which is tax-free. In the end, you paid…a few thousand dollars in premium over your lifetime, and now your family gets a death benefit worth a million dollars, tax-free.”
A few thousand dollars for a million-dollar death benefit? That is a pretty good exchange, in our opinion!
Tax-Free Retirement Funds
Furthermore, life insurance can be an income replacement for retirement. To achieve this, “You can buy what’s called cash-value life insurance. This means that a portion of your premium goes into a cash account,” which is similar to a savings account, which “grows at a safe conservative interest rate.” The advantage to this kind of investment is that while your money is still being invested in the stock market and growing that way, you will never lose money if the stock market experiences a downturn because your investments connect to a life insurance policy. Criss adds, “It’s better than putting the money in the market because there’s no risk with a life insurance policy. Though you may not get a 34 percent [interest increase], a cash-value life insurance policy is safe” and will grow steadily at 3-5%.
Most importantly, the life insurance company guarantees your policy will be paid out in full, and you can use it for supplemental income during your retirement. Again, all tax-free! “So unlike a 401(k) or an IRA, which are both tax-deferred, the government can’t apply taxes to the policy. So if you did purchase the million-dollar policy, then you’ll get the million dollars when you finally use it.”
Life Insurance Questions?
We hope that this information on tax-free life insurance benefits has been useful to you.
If you’d like to learn how we can help you plan your retirement, call Empower Brokerage at (888) 539-1633 to speak to one of our Life and Annuity experts or leave a comment down below.
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This article was revised on 08/06/24.