Life Insurance and Taxes

Throughout life, there are many constants – and one of those is paying taxes. We typically pay tax on the items and services we purchase, as well as on the income that we earn, and on the gain that we receive on many types of investments.

But, when it comes one particular financial vehicle, there can actually be a number of nice tax benefits. That vehicle is life insurance. In fact, there are numerous tax-related benefits that are associated with life insurance, both for the policy holder and the beneficiary.


Tax and the Receipt of Life Insurance Proceeds

One of the primary tax benefits with regard to life insurance is the fact that the policy beneficiary is not required to pay any income tax on the death benefit proceeds that they receive.

This, in turn, can allow the recipient of these funds to use 100% of the benefit received for a variety of different needs, such as the payoff of debt, and / or the ongoing payment of living expenses.

While the tax treatment of life insurance proceeds is beneficial, though, there are other ways in which these policies can provide tax advantages, too – particularly with a permanent life insurance policy.

For instance, the funds that accumulates in the cash value component of a permanent life insurance policy are allowed to grow tax-deferred. This means that there are no taxes due on the gain unless the money is withdrawn.

This can allow the funds to grow and compound exponentially over time. And, if the funds are instead taken as a loan (as versus as a withdrawal), the money is essentially received tax-free by the policy holder.

This can provide a way to finance any number of needs, such as:

  • A supplement to retirement income
  • The down payment on a new home
  • The purchase of a new vehicle
  • The payoff of higher interest debt, such as credit card balances
  • Payment of college tuition for a child or grandchild

In some cases, a whole life insurance policy holder may be eligible to receive dividends. Because dividends are considered to be a return of excess premium, they are not taxable, and therefore they are not required to be reported on the policy holder’s tax return.

There are several ways that dividends may be received by a life insurance policy holder. These include receipt in the form of a check to the policy holder, or alternatively they could be used to purchase additional life insurance protection. Dividends can also be added to the cash value of the insurance policy, where these funds are allowed to grow on a tax-deferred basis.


Providing Your Clients with Financial Protection and Tax Benefits

Because all needs are different, there is no one-size-fits-all form of life insurance protection. But, depending on what your clients may need, it is likely that you will be able to “customize” the coverage – as well as the tax-related benefits – to closely fit both short- and long-term financial objectives.

If you would like to start generating a consistent flow of additional life insurance leads, and in the process have the ability to earn thousands of dollars each month in additional commission income – give us a call today at 1-800-643-6143 and we’ll provide you with more details.


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Brian J. Kay, Executive Director, Leads4Insurance
921 Port Washington Blvd., Suite # 3 Port Washington, NY 11050
tel:(516)944-6700 fax:(516)944-5275