I have been asked many times, especially closer to the tax season if life insurance really is a tax-efficient product. Life Insurance is definitely a tax-efficient product and provides a plethora of benefits surrounding your tax dollars. While some of the benefits are evident, there are a few under the surface that many do not know about.
For one, the premiums are paid out tax-free. This applies when paying for the premiums with after-tax dollars. Another great reason why life insurance is such a tax-efficient product is that the funds within those policies if it is a permanent policy and it is under the tax-exempt, are going to grow tax-free.
In addition to your death benefit being paid out tax-free, you can have the funds within the policy that grow on a tax-free basis and if they are kept within the policy and the policyholder passes away, they too are paid out tax-free.
Another really great feature of the permanent type policies is that they generate a cash value. That cash value can be used to offset future premiums and essentially you are paying for your premiums, in that instance, with pre-tax dollars rather than after-tax dollars. And once again, the death benefit is paid out tax-free.
There are a multitude of tax benefits with life insurance which are great to keep in mind if you are considering purchasing a policy or changing your policy.
To fully understand all the benefits and ensure they are applicable to you and your individual situation, it is best to speak to a good broker who works with all the different companies and has knowledge on various policies. These brokers can help you better understand the benefits and what they can do for you.
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