Whole life insurance can be a critical part of your overall financial strategy.
That’s because whole life insurance offers a combination of death benefit protection, cash value accumulation, guarantees and income tax advantages that differentiate it from most other types of financial products.
A whole life insurance policy can be a versatile financial asset that may help you effectively address different financial needs during various stages of your life. The policy accumulates guaranteed cash value over time which increases each year and will never decline in value due to changes in the financial markets.
Whole life as a source of cash or credit – The cash value that a whole life policy accumulates is much like the equity that you build in a home, and it can be an additional financial resource during a time of need.
Whole life insurance as a source of supplemental retirement income – Today, many people are realizing that the traditional sources of retirement income, such as Social Security and employer-provided retirement plans, may not provide enough income to maintain their standard of living when they retire. A whole life insurance policy may be a tax-efficient way to accumulate additional funds to help supplement your retirement income.1
Income tax advantages – Whole life insurance policies also offer a combination of valuable income tax advantages that include:
• An income tax-free death benefit – The death proceeds of a whole life policy are generally received income tax-free by the beneficiary.
• Tax-deferred cash value growth – Policy cash values, including the cash value of any paid-up additions, accumulate on a tax-deferred basis.
• Tax-advantaged distributions1 – Policy dividends (which are not guaranteed) and any partial surrenders of cash value are received as a return of cost basis first and gain last.
This means that the policy owner will not pay taxes on these distributions until they exceed the total out-of-pocket premiums they paid.
In addition, borrowing from the policy will not result in taxable income, as long as the loan is repaid with out-of-pocket payments while the policy is in force, or it is repaid from the policy proceeds at death.
You and your family may face different financial challenges over the course of your lifetime. It is important to have financial resources that will help you to be prepared for whatever life brings. A whole life policy can be a valuable asset that may help you meet your changing financial needs during different times of your life.
A whole life insurance policy may help you:
• Protect your value as a provider for your family or business;
• Accumulate cash value that may be used in a variety of ways;
• Live a more secure and comfortable retirement; and
• Provide a financial legacy for your family.
The information provided is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel.
The decision to purchase life insurance should be based upon long-term financial goals and the need for death benefit. Life insurance is not an appropriate vehicle for short-term savings or short-term investment strategies. While the policy allows for loans, you should know that there may be little to no cash value available for loans in the policy’s early years.
1Distributions under the policy (including cash dividends and partial/full surrenders) are not subject to taxation up to the amount paid into the policy (cost basis). If the policy is a Modified Endowment Contract, policy loans and/or distributions are taxable to the extent of gain and are subject to a 10% tax penalty.
Access to cash values through borrowing or partial surrenders will reduce the policy’s cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.
2You should consult with your own legal counsel to determine whether the laws in your state exempt personal and/or business assets from the claims of creditors.