What are the tax advantages of cash value life insurance?

Cash value in life insurance has three main income tax advantages: usually income-tax-free death benefits, tax-deferred cash accumulation, and usually income tax-free withdrawals and surrenders.

1. Death benefits have tax advantages

Death benefits are generally received income tax-free. However, everyone's financial situation is different. So, you'll need to double-check what's true in your case by talking to Rachael Kathleen Rawlins, your financial advisor, and your tax attorney. Generally speaking, the income-tax-free nature of death benefits is a big plus of having life insurance.

2. Cash value accumulates tax-deferred

Many types of cash value life insurance come with an interest rate, dividends, or investment options. That allows you to grow money inside your policy if economic winds are in your favor. There’s always the opportunity to lose money, too. Interest rates, investment returns, and dividends aren’t guaranteed. And investment returns are subject to market volatility. But let’s say you experience the best-case scenario and your cash value grows. That growth within a life insurance policy can be tax-deferred. You usually don’t have to pay taxes on your gains until you take a withdrawal.

3. Withdrawals & surrenders are usually income tax-free

If you no longer need your death benefit coverage, in full or in part, you may be able to access the cash value of your contract to cover other financial needs. Although withdrawals are usually income tax-free, there are special cases where withdrawals and surrenders can generate an income tax liability. For example, a significant taxable event can occur if a contract terminates with outstanding debt. Contact your tax advisor and financial advisor for details.

4. Modified endowment contracts (MECs) further tax-deferred growth

When designing a strategy, you might have a goal of adding as much premium as possible to a contract, as bigger payments may lead to a larger cash value. But if your payments exceed Internal Revenue Code limits, the contract becomes a MEC. Many people prefer to avoid MEC status, especially if they intend to access the cash value in a contract during their lifetime. However, when a life insurance contract becomes a MEC, the cash value continues to grow in the contract tax-deferred. This may be appealing if you need life insurance coverage but do not expect to access the value while you are living and want to shelter growth on that asset from annual taxation. There are additional pros and cons of MECs that should be considered in full.3,4 Read more about modified endowment contracts and consult a financial advisor or tax professional before making changes to your cash contributions.

Can you build up cash value faster?

You can build up cash value faster by increasing the size of your premium payments if your policy allows it. For policies that don’t allow it, there may be other options. One of those options is using any dividends earned to purchase paid-up additions. Similar to how you can reinvest stock dividends to buy more shares, you can "reinvest" insurance dividends to increase your contract's death benefit and cash value.

It is not a goal of risk retention to minimize the insured's level of liability in the event of loss. Retention usually results from three basic desires of the insured: to reduce expenses and improve cash flow, to increase control of claim reserving and claims settlements, and to fund losses that cannot be insured.

The automatic premium loan provision is activated at the end of the "grace period". Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.

A return of premium rider allows increasing term life insurance policyholders to recover the premiums they've paid over the life of their policy if they don't die while the policy is in effect. Policies with this provision are also referred to as return of premium life insurance.

The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

Choosing between universal life and whole life insurance can be a difficult decision.

Here are some factors to consider:

Lump sum death benefits are not taxable. Dividend interest is taxable; policy loans are not tax deductible, and premiums are not tax deductible.

- An insurer can charge interest on outstanding policy loans.
- A policy loan may be repaid after the policy is surrendered.
- Policy loans can be repaid at death.
- Money borrowed from the cash value is not taxable.

Policy loans can be repaid at any time, including surrender and death.
An insurer can charge interest on outstanding policy loans.
Money borrowed from the cash value is not taxable.

Policy loans can be repaid at any time, including surrender and death.
An insurer can charge interest on outstanding policy loans.
The death benefit can be increased by providing evidence of insurability.

You can add a children's rider, a term insurance covering all of the children in the family, including newly born children, and is convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability. The premium does not change on the inclusion of additional children; it is based on an average number of children.

Variable life insurance is regulated by both the state and federal government, as well as the Insurance Department, and the SEC.

With fixed annuities, the company is required to pay at least a guaranteed minimum rate of interest to the owners. If the company investments perform well, the company will pay a higher interest rate, but since the interest rate can never fall below the guaranteed minimum, that's what ultimately determines what the company will pay.

Survivorship Life is much the same as joint life in that it insures two or more lives for a premium that is based on a joint age. The major difference is that survivorship life pays on the last death rather than upon the first death. Since the death benefit is not paid until the last death, the joint life expectancy in a sense is extended, resulting in a lower premium than that which is typically charged for joint life.

The Common Disaster Clause provision states that when an insured and beneficiary die in a common accident, and the beneficiary dies before or within a specific period of time after the insured, the insurer will proceed as if the insured outlived the beneficiary. Like other types of whole life policies, Single Premium Whole Life (SPWL) endows for the face amount of the policy if the insured lives until the age of 100. The distinguishing feature of a SPWL is the fact that it generates immediate cash value, due to the lump-sum payment made to the insurer.

With Universal Life policies, the policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. In fact, the policyowner may even skip paying a premium and the policy will not lapse as long as there is sufficient cash value at the time to compensate for the nonpayment of premium.

A "cost of living" rider adjusts the face amount of a policy to maintain the relationship of the face amount and increases in the cost of living.

There are many legitimate need-based expenses that can be paid by life insurance proceeds, from groceries to retirement income. Vacation travel expenses are most likely to be considered a luxury and not a need.

A Buy-Sell agreement (also referred to as a business continuation agreement) is a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled.

The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

Universal Life policies allow for policyholders to withdraw a limited portion of the policy’s cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.

When the fixed amount settlement option is chosen, the policyowner sets the amount of each installment. The insurer will determine how long the installments are to be paid.

Premiums:
Universal life policies offer flexible premiums, while whole life policies have predictable premiums. If you prefer a consistent monthly payment, whole life insurance may be the better option.

Death benefits:
Universal life policies provide flexible death benefits, while whole life policies have fixed death benefits. If you want the ability to adjust your death benefit over time, universal life insurance may be the better option.

Cash value accumulation:

Whole life policies feature guaranteed cash value accumulation, while universal life policies do not. If you want a policy with more guarantees, whole life insurance may be the better option.

Flexibility:

Universal life policies are more flexible than whole life policies. They allow you to adjust your premiums and death benefits over time. If you want more flexibility in your policy, universal life insurance may be the better option.

Ultimately, the choice between universal life and whole life insurance depends on your individual needs and preferences. It’s important to carefully consider your options and consult with Rachael Kathleen Rawlins, your financial advisor before making a decision.

No, universal life insurance is not a term insurance policy. Universal life insurance is a type of permanent life insurance that provides coverage for the policyholder’s entire life

• Unlike term life insurance, which provides coverage for a specific period of time, universal life insurance policies do not expire as long as the policyholder continues to pay the premiums.

Universal life policies offer flexible premiums and death benefits but have fewer guarantees than whole life policies. Whole life policies feature predictable premiums and guaranteed cash value accumulation

• Whole life insurance is more predictable, but less flexible. It often has consistent monthly payments, and cash values are outlined when the policy is issued. Universal life insurance premiums can be flexible, but the cash value is not predetermined when the policy is issued.

In the context of universal life insurance, Option A and Option B are two death benefit options available to policyholders.

Option A is a level death benefit option, which means that the death benefit remains at a constant level for the life of the policy, regardless of the performance of the cash values.

Option B is an increasing death benefit option that pays the face amount of coverage purchased plus the accumulated cash value. The death benefit gradually increases each year by the amount that the cash value increases. The pure insurance with the insurer remains level for life, and the expense of this option is much higher than that for Option A, therefore causing the cash value to be lower in later years (all else being equal).

Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount