Life Insurance and Favorable Taxes

This blog post is a continuation of a 7 part series on life insurance. You can find the first post here: http://www.your-insurance-experts.com/why-get-life-insurance-part-1/

Using Life Insurance for Favorable Tax Treatment

If you had a dollar that doubled every year (100 percent gain) for twenty years, you would have $1,048,576, which would be fantastic. However, if that money was taxed each year at 30% you would have a meager $40,642. I am in agreement that we should all pay our fair share of taxes, but I also believe that we should make ourselves aware of ways to redirect our hard-earned money that favors us. Permanent cash value life insurance is a way to place large sums of cash, and if structured properly, receive the growth of that cash free of income taxes (based on current tax laws as of the time of this writing).

Perhaps you are wondering why you did not know about this, and how is it possible to have an increase of cash value without having to pay taxes. Firstly, it is important to understand that many insurance professionals only know insurance and many financial professionals only know finance. Utilizing cash value as an investment strategy within a life insurance policy combines two different professional industries in one product. As time passes, more professionals are starting to see the value of understanding both industries, but this process is still in the infancy stages.

The money you place in cash value life insurance has already been taxed by the time it enters your bank account. Because the money is a part of a life insurance policy, there is no tax liability on the growth as long as you stay within the funding limitations from the government. For example, Justin needs $500,000 of coverage. Depending upon policy variations from one insurance company to another, he could put around $1,400/mo. into his policy. At age 70, he could have around $2,000,000 even after the fees and cost of insurance. Additionally, he still has $500,000 to pass to his heirs. The best part of the $2,000,000 is that he has access to that money tax free!

You may have noticed the many disclaimers about having a properly structured cash value life insurance policy. To illustrate this point, a dragster racing car requires a special type of fuel and a properly structured racing course to get the maximum use out of that type of high performing vehicle. A specific combination of methanol and alcohol are used as fuel to help these cars to reach speeds in excess of 300 mph in less than 5 seconds. If I decided to fuel a dragster with unleaded 87 fuel, and drive it around the neighborhood, could I possibly get the maximum use from this vehicle? Absolutely not. Similarly, cash is the fuel and time is the course for this type of funding vehicle. Along these lines, someone with a cash value life insurance policy should put as much cash as the policy will allow for at least 20 years to accomplish the absolute best benefit. I would imagine that there is no exhilaration like going from 0 to 100 mph in less than a second. Likewise, having access to over a million tax-free dollars is a thrill like no other.

In the next blog post I will discuss how the Real Power in Cash Value Life Insurance comes during Distribution…