Do you have a life insurance cover? Well, consider taking one soon. Life insurance should be a significant investment part of your finances if you have dependents. Life is more fulfilling knowing that in case your time to depart this world came, those affected by your demise would be financially protected. None of us can predict our date into the hereafter, but you can continue being there financially for your loved ones even after you are gone.
What are the top tax considerations of Life Insurance?
Life insurance premiums are a non-tax-deductible event
By and large, life insurance premiums are paid with after-tax dollars. Another incredible thing is that life insurance dividends are a tax-free investment. It doesn’t matter whether you choose to pick your dividends or as a return of premiums with the insurer, no tax will be charged at all. What’s even better is that even when you choose to invest in paid-up insurance extras, your dividends will not be taxed.
No deposit limits
The IRA has never set any deposit limits for life insurance. For this incredible yet straightforward reason, you can take advantage of your life insurance to spread the wealth to your dependents without worrying of getting taxed heavily along the way. You’re free to deposit the amount you want, and no one will penalize you for that provided you adhere by the terms and conditions.
Tax-free death benefit
For the entire single or multiple –premium life insurance policies that meet the set specifications of life insurance, death proceeds received by beneficiaries are exempted from taxation. Generated dividends can only be taxed if it exceeds your premium net worth.
Tax-free Cash withdrawals
You are allowed to withdraw your money if your life insurance policy has sufficient funds where necessary. In an event where this occurs, you have every reason to smile since your withdrawals will be tax-free. However, any gain on your premium payments can and will be taxed. For example, you have pumped $500,000 into your life insurance, but you have $650,000 at your time of withdrawal. The initial $500,000 will be tax-free, but the gained $150,000 will be considered as taxable income.
Many don’t know you can utilize your original life insurance policy as adequate security for a policy loan? Well, you now know. Interestingly, your policy loan is not considered as an income by the taxman. Resultantly, policyholders who opt to take policy loans against their permanent policy’s cash value are not taxed regardless of whether the loan amount exceeds the paid premiums. Your permanent life insurance policy has to be intact when taking a policy loan to enjoy this privilege.
Other tax advantages of life insurance include tax-deferred cash value accumulation & FIFO tax-free distribution. For a more comprehensive detail on what’s taxable or non-taxable, contact Global Investment Strategies in Tucson, Arizona.