Life Insurance
Tax Free* Income
Could life insurance offer potential benefits for retirement?
Tax Free* Income
Life insurance? In retirement? Some people may wonder if getting a new life insurance policy in retirement would be valuable for them. (Beyond the typical death benefits, of course.) In fact, there are situations in which a certain type of life insurance may be useful for retirees even if you have a large amount of savings. Let’s take a look at an indexed universal life (IUL) policy, for example. This is an option that may offer some people the chance to access additional tax-free* income. Specifically, traditional retirement accounts may have maximum contribution amounts. However, an IUL is different. Instead, it has insurance rules and regulations so different terms apply.
Why is it Tax Free* Income?
One of the lesser-known potential benefits of an IUL is income in retirement. Of course, people do use life insurance to make sure their loved ones still have financial resources via death benefits. However, did you know that it may be possible to take out money from your IUL, depending on your policy terms? In some cases, a retiree may decide to use this access to cash as another income source in retirement. Remember, an insurance policy may grow in cash value without a tax liability until a later date.
Accessing Money in Retirement
Using an IUL may give you the chance to have another place for your “emergency money.” Some individuals may decide to use this money for college expenses for their grandchildren or children. Also, IUL cash value might be borrowed against it for large expenses. Of course, this may reduce your life insurance payout amount but you may decide to weigh that outcome against your need for cash today. The good news: tax free* income options may be available with an IUL.
What Are Some Different Types of Life Insurance?
Term life insurance has a set period of time during which the policy owner has death benefit coverage. Put simply, if you pass away during this term, your beneficiaries receive a death benefit. However, this type of policy usually holds no other value. When the term is up, so is your death benefit.
Indexed universal life (IUL) insurance may provide more options and benefits than a term policy. For example, when you max out the cash value of your IUL, you may decide to take out some of the money to use as income. Did you pay your premium in full? Then, you may be able to take tax free* income on what is left. Also, some retirees may decide to borrow against their life insurance policy. Because tax regulations differ on money you borrow versus money you earn, some retirees use this concept for tax-free* income.
When Might An IUL Be Something To Consider?
Certainly, not everyone will be a good fit for an IUL.
However, in some circumstances, it can be a useful tool to learn more about. Here are some situations in which retirees may consider learning more:
Cash value of IUL is not at risk of loss due to market conditions
Cash value increase uses an index
Each year, you can “lock in” your cash value increase
Choice of index or indexes that link to your IUL
Potential tax-free* income or tax-free* access of money
Premium may be paid upfront or over time
Possible way to use some of your money before age 59 1/2
Benefits of Life Insurance Beyond Your Life
IULs may offer a death benefit to your beneficiaries without taxation. Other types of assets may not have this benefit. However, by selecting the right type of policy, you may be able to secure this feature for your family. Protecting and serving is a key value at Always Evolving Financial & Insurance Agency.
Disclosure & Disclaimer
We are not affiliated with any educational or government agency. This material is for informational purposes only and is not intended to be a solicitation for or offering of any product or investment. We do not provide investment, tax, or legal advice. Always consult with your own qualified advisors regarding your individual situation. Insurance and annuity products are not suitable for everyone. They involve fees and charges, including potential surrender penalties. Optional benefits and riders may involve additional annual costs. Life insurance requires medical and often financial underwriting to qualify. Loans and withdrawals from life insurance policies reduce policy death benefits and cash values, and may cause the policy to lapse or require additional premiums to remain in-force. Annuity withdrawals are subject to ordinary income taxes, and may incur a 10% IRS penalty if taken before age 59½. Product features and availability vary by state. Fixed indexed life insurance and annuities are not direct investments in the stock market or any index. The interest credited may be linked to the performance of an external index, but the contract does not directly participate in any index or equity/fixed interest investments, nor are you buying shares in an index. Crediting is subject to limits set by the issuing company, such as caps, spreads, and participation rates. Long-term care riders on insurance or annuity products are not a replacement for traditional long-term care insurance. Guarantees are backed solely by the financial strength and claims-paying ability of the issuing company. The offer and sale of insurance products may only occur in states where the agent is licensed and the product is approved for sale. Investment advice relating to securities may only be provided by a properly licensed individual through a licensed affiliate entity, unless otherwise exempt. Comments about past performance should not be construed as a guarantee or assurance of future results. This website may include concepts with legal, accounting, and tax implications. We do not provide specific legal or tax advice, nor do we promote, market, or recommend any tax plan or arrangement. Consult a qualified professional for guidance. No representation is made as to the accuracy or completeness of the information provided here or through any external links. Visiting this website does not create an agent-client relationship.
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