When you think about tax-free income in retirement, the traditional vehicles likely come to mind. Such as your 401(k) or 403(b), traditional and Roth IRAs, and your personal savings account. What you may not consider, however, is that life insurance can also function as a form of retirement income – with tax advantages.
Permanent life insurance, which includes whole and universal policies, builds cash value over time and can function as a source of tax-free retirement income. The cash value accumulates over the life of the policy when the policy owner pays premiums. The insurer deducts the policy expenses from the premium payment. While the remainder of the amount contributes to the cash value account. If you need to withdraw money from the cash value of the policy as a source of retirement income, the income is not taxable. This can be an easily accessible source of funds, especially if you need to cover emergency expenses.
Making a withdrawal from the cash value of your permanent life insurance is a policy loan and insurers have requirements that must be met to obtain one. These requirements may include:
Like all loans, if the money is not repaid, there are consequences:
Talk to a financial advisor about the benefits of withdrawing funds from your permanent life insurance policy. Your advisor can help you understand your options for repayment of the loan. As well as the impacts on your estate if you choose not to repay.
Disclosure: This information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. For producer use only, not for use with the general public.
Policy loans and withdrawals will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of an unrecovered cost basis will be subject ordinary income tax. Withdrawals are generally income tax-free unless the withdrawal amount exceeds the amount of premium paid. Tax laws are subject to change. Clients should consult their tax professional.
Charlie leverages his extensive background to structure insurance-based plans to protect families and businesses. He is a rare individual who believes the client relationship is the most important aspect to protecting a family’s future. Charlie has been a financial advisor and insurance specialist for over 20 years. Contact us today to schedule your first appointment.