Why People Are Buying Permanent Life Insurance: Tax-Free Withdrawal Benefits

Why People Are Buying Permanent Life Insurance: Tax-Free Withdrawal Benefits

Managing Editor John McCarthy takes a look at why people rarely talk about the secondary benefits of buying life insurance, and why secondary benefits are nearly as important as permanent life insurance.

As they say in the movie, “The first rule of Fight Club is that you don’t talk about Fight Club.”

As far as life insurance goes, there seems to be a keep-hush attitude toward the secondary benefits of buying permanent life insurance.

Of the countless commercials for life insurance out there, I don’t remember any of them that mention the handsome insurance tax benefits one can have with permanent life insurance (I discuss these further below).

People like to be told they are “doing the right thing” by reserving money for their loved ones after the pass – that their selfless financial martyrdom will be the beacon of hope to future generations.

And while that is certainly true, should that be the only selling point for permanent life insurance? Why not mention that cash-value life insurance can be a lucrative asset building vehicle?

It’s as if it is assumed this information is already known, and/or it’s taboo to mention a “selfish” benefit to what’s considered an unselfish gift to one’s survivors.

This taboo blows my mind. And I’m here to tell you right now that it makes no damn sense throwing a wet blanket on the lucrative perks of buying permanent life insurance.

The fact is that these secondary benefits nearly outweigh the primary benefits of permanent life insurance. And I hope this discussion of them allows you to incorporate them into your pitch to sell cash-value life insurance. Maybe it’ll convince you to begin selling it if you aren’t already.

First, a holder will pay no income tax or interest credited to cash value, even as it accumulates.

Second, just as the case with term life insurance, a cash-value life insurance holder’s heirs also won’t pay income taxes on proceeds bequeathed to them. Again, not one cent. A $250,000 policy will deliver exactly that.

Third, a cash-value life insurance holder won’t pay income tax if they withdraw their cost basis then borrow the rest of the cash value from their policy. This can be a substantial income supplement. (This is all according to the current tax laws).

You see, permanent life insurance (especially cash-value) isn’t just for those who’ve eclipsed their twilight years. Cash-value life insurance is a financial vehicle that allows a holder to accumulate tax-deferred and potentially tax-free savings for the enjoyment of their retired life as well as leave a sizable chunk of tax-free money for their beneficiaries in the tragic event they pass in the midst of it.

Along with 401(k), stocks and other long-term investments, cash value life insurance should be considered an asset builder. And as I said earlier, it isn’t wrong to suggest this to a prospect.

However, before you begin selling cash-value life insurance, you must know the tax law limits and the contribution limits that allow these tax-free perks to be realized. Consult a tax attorney or accountant to fill whatever gaps in knowledge you may have.

Regards,

John McCarthy
Managing Editor, Leads4Insurance.com

 

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How to Identify the “Blind-Spot” in Your Practice

 

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