How Life Insurance Tax Benefits May Help You - By: Shane Flait

Ensuring that a family can financially survive the death of its bread winner has been the principal purpose of life insurance since its conception. Over the years, it's developed many tax-saving attributes that increase its usefulness as a store of value - and for retirees too. Which of these tax benefits can you use?

As a tax shelter, life insurance can save on income taxes for you or your beneficiaries. It can also help you bypass estate taxes while you supply wealth to your love ones as a legacy.

First off, life insurance comes in two fundamental forms - permanent and term. Both offer a death benefit to a designated beneficiary upon the death of the insured. But only permanent life insurance builds a store of value translatable into cash you can use before you die.

Permanent life insurance includes whole life, universal life and variable life - the latter two are store some or all of their value in market-type investments.

*Death benefit tax advantage:

Producing a legacy through life insurance is principally done through the death benefit payout. There's no limit to the size of the death benefit you can create. The tax benefit is that your beneficiary receives the payout free of income tax. Transferring other tax advantaged investments ultimately requires you or your beneficiaries to pay tax on its earnings.

If you have wealth you wish to share while you're living, you can gift money to your loved ones and request they take some of it to buy an insurance policy on you. That way they can enjoy some of your wealth now and more when you die.

*The tax advantage of permanent life insurance's store of wealth:

Unlike other tax-advantage investments, there's no limit on the store of wealth you can have in your life insurance - through growth or contributions. When you've maxed out contributing to other tax-advantaged investments, you can add to your life insurance savings.

Like other tax-advantaged investments, your life insurance cash value grows tax-deferred. One benefit of life insurance savings is that its earnings will never affect your social security taxation. Taxable interest and dividends as well as tax free interest on bonds can drive up your social security taxation if they make your income high enough.

If your life insurance value is spread between market accounts, you don't incur taxation by rebalancing these accounts if they're within the same policy.

While you're living you have access to the store of value of your life insurance policy. If your policy permits, you can take a tax-free loan of its value. However, under taxing conditions, you can access it by surrendering your policy or making a settlement.

About the Author

Shane Flait helps you with your financial legal, tax, and retirement goals. Get his FREE report on Managing Your Retirement => http://www.easyretirementknowhow.com/FreeReportandSignUp.htm Read his ebook: 'Wise Way to Financial Independence' => http://www.easyretirementknowhow.com/WiseWayGate.htm

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