Did you know that when you purchase life insurance, you might be able to save on your taxes? Life insurance primarily functions as a safety net, but these policies might also give you tax advantages. Let us explore different life insurance options that allow practical coverage while keeping more dollars in your bank account.
How can I save on taxes with life insurance?
Some life insurance, such as Whole Life and Universal Life, are cash-value policies that provide a cash accumulation component. The growth in the cash value account is tax-deferred, which means a policyholder can build wealth minus urgent tax consequences. You must understand that if you decide to access the cash value, you will need to pay significant taxes for this acquisition.
Additionally, owning cash-value life insurance might give you the option to take a policy loan against the accumulated cash value. Generally, these loans are tax-free and offer you a source of available cash without initiating a taxable event. You can use these funds to pay for educational expenses or supplement your retirement income. Not all retirees find that they have enough income after surrendering their consistent paychecks, so utilizing the cash-value policy is a chance to make up for the lost revenue.
The most common life insurance policies do not provide tax-deductible benefits for policyholders’ premium payments. Yet, there are some exceptions. A business owner could receive a tax break if they buy a life insurance policy for the business they own. Furthermore, business owners might be allowed to deduct premiums paid for vital people that their business could not operate without them. This type of insurance is key person insurance.
Can my beneficiaries save on taxes?
Most life insurance coverage will allow beneficiaries to receive the death benefit without paying additional taxes. It is usually the main reason people purchase life insurance. Certainly, a loved one’s passing is never easy, but monetary support can prevent further financial stress in an already difficult circumstance. Heirs also stand to take advantage of tax-excluded life insurance. Typically, upon the insured person’s passing, federal estate taxes will not include the payout in the deceased’s estate. Thus, the tax burden on heirs would not be as substantial had there not been life insurance.
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Life Insurance Questions?
We hope that this information on taxes and life insurance is 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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