Life insurance provides a good SUPPLEMENT to retirement income. Anyone who tells you it is the best choice to fund your entire retirement has greed in his eyes.
Permanent life insurance has taxation benefits. Nothing else has, except a ROTH IRA. However, the ROTH does not come with the guarantees that life insurance does. Life insurance is an excellent way to put a portion of your total investment portfolio into a “non-correlated investment”. In other words, when the market takes one of its 40-50% dives, like we have seen in two of the last 19 years, the cash value of a life policy is unaffected.
Life Insurance is a non-correlated asset that supplies stability and balance to your overall investment portfolio. The return on investment of the cash value within a policy rivals an SP 500 index fund because of the special taxation treatment it gets. The cash value can be taken out as income and capital gains tax free under certain conditions. You can also choose to have the cash value paid out at death, in addition to the death benefit. For example, if you have a $200,000 policy that has accumulated $30,000 in cash vales and you die before retirement, your beneficiary would get $230,000. The income taken out of a life insurance policy is income tax free IF you meet one IRS requirement: the policy has to be in force when you die. Let’s say John Doe has $300,000 cash value in a policy, with a death benefit of $500,000. He starts withdrawing money from his life policy. With most companies, as he nears a cash value account of zero, he can then freeze the policy, take no more money out and when he dies the IRS will forgive the taxes under code 7702.
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