What does saving money, protection planning and your taxes have to do with each other?  The short answer, more than you think.  The long answer…

Often times, our clients and future clients come to us asking how they can reduce their taxes, invest and protect their families.  These are all very good reasons to seek the advice of a financial advisor.  Specially designed life insurance may be able to help you accomplish all three of these tasks.  Very often, it’s referred to as the rich man’s Roth IRA.  That’s because Roth IRA’s have contribution limits – meaning if you make too much money then you lose eligibility to contribute your hard earned money into this type of plan.  However, you may be able to save into a specially designed life insurance policy while having the benefit of protecting your family in the event of your death.  It’s also a great way to get permanent coverage as well.

Let’s break it down beginning with protection planning.  Having a permanent life insurance policy can help you with a number of issues that arise in financial planning.   The first, its payout benefit if the policyholder dies with the contract in force.  The beneficiaries will receive the death benefit of the policy often tax-free.  Having a death benefit helps deal with immediate liquidity needs that arise when someone dies.  Paying funeral expenses, the deceased’s debt obligations such as a mortgage or the bills from lost income.  It can also help offset the burden of estate taxes.

Which brings us to our next topic.  In our experience, people don’t enjoy paying taxes.  We suspect that you may feel this way too.  The cash value in a permanent type of life insurance policy can often grow tax deferred and be withdrawn tax-free*.  It’s important to note that you should consult with a financial advisor who specializes in this type of transactions in order to avoid paying hefty taxes.

Permanent policies very often have cash value that builds up and can be invested.  These investment portfolios are very similar to other types of investments.  They can help you diversify your portfolio and also diversify the types of tax implications that arise with financial planning and wealth management.  It’s also a way to systematically save your money, as the premiums are due typically, monthly or quarterly.  There are other options for paying into these policies.

It is possible to save, protect and control your tax bill all at the same time.  Review these and other options with your financial advisor to see which types of plans are right for you.


*Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy’s account value and death benefit.  Assuming the policy is not a Modified Endowment Contract (MEC), withdrawals are taxed only to the extent they exceed the policy owner’s cost basis in the policy. A withdrawal reduces the cash surrender value and can affect the face amount, death benefit and net amount of risk. Withdrawals may increase the risk of policy lapse and may have unfavorable tax consequences.

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