8/20/14
Published by Cindy Gentry
Taking a loan from a cash value life insurance policy is a lost tax advantage benefit. We as insurance advisors just don’t talk enough about what they are and how they work. Index Universal Life (IUL) policies have brought back more discussion on how policy loans can be used later in life. But do you really know how a policy loan in an IUL policy works?
Published by:
Unfortunately, once again the tax advantages of life insurance products are being threatened! Millions of families are unaware that a slight change in the tax law on life insurance can have enormous implications for their financial future and dire consequences for 20 percent of Americans’ savings.
Let’s take a moment to revisit some of the benefits of cash value life insurance. First and foremost it is a permanent life insurance policy designed for protecting loved ones for the insured’s lifetime, being there when needed. Here are some other benefits that you may not have thought about in a while.
Forced Savings
When you sell a whole life (WL) or Universal Life insurance (UL) policy, your client is forced into saving money. Your policy builds cash value, unlike a term policy. the domain shops Many of us do not have the discipline needed to invest money every single month without exception. We get around to it whenever we can and that usually is not very often. With a whole life and UL policy, they actually take a part of your premium and invest it. This means that you will be saving part of your money every month. It will grow over the years to a fairly large balance.
Tax Deferral
The interest accumulation in permanent life insurance grows tax deferred. Which means your client does not have to pay tax on any of the growth until it is withdrawn.
Accessing the cash
The cash value of a life insurance policy can be accessed in two ways.
1. Withdrawals – When withdrawals are made from a policy, your client first receives the premium paid or cost basis and no tax is due on that return.
2. Policy Loans – loans are made from the general funds of the life insurance company using the life policy as collateral. Funds still accumulate inside your client’s policy; however the carrier will charge interest on the loan balance. The net cost of the loan however can be, net 1 to 2 percent making loans from their life policy advantageous. Generally, loans are not considered a taxable distribution unless the policy is classified as a Modified Endowment Contract. In that case, a loan may be reportable as taxable income if the policy’s cash value exceeds the cost basis (premiums you paid into the contract). Keep in mind; loans do reduce the face amount of the policy if not repaid.
Why access the cash?
· Medical bills
· Starting a new business
· Pay for schooling
· Retirement income
· Premium offset
· Unexpected expenses
I challenge you to take another look at permanent life insurance that accumulates cash value, whether it is Whole Life, Accumulation UL, or Index UL. Offer your clients the value of cash value, forced savings and some of the last tax advantaged products available to them today!
