Life insurance as a financial instrument provides both living and post-life benefits. While you are alive, a properly designed strategy can provide you with cash payments you can use for long-term care, thereby reducing or eliminating your need to dig in to other assets.
Additionally, an LIRP can provide you with a dependable income that is free from government-mandated age restrictions. As a death benefit, life insurance can complete your responsibility to loved ones in the event of your passing. Most importantly, a well-structured LIRP strategy can receive favorable tax treatment on both its living and death benefits. Generally, cash value grows tax-deferred, withdrawals of premium are tax-free, and death benefits are received tax-free. Come in to Raleigh Wealth Solutions to learn more about how an LIRP works and determine if it fits your particular retirement needs.
The policy owner may access the living benefits of the insurance policy in a number of ways (the tax results assume the policy is not a modified endowment contract), including dividends in cash. This will be received income tax-free until the owner recovers basis. Thereafter, the dividend is received as ordinary income. Surrendering cash value of paid-up additions. These funds will be received income tax-free up to the policy owner’s basis. Further surrenders will result in ordinary income.
Borrowing against the contract. Loans are received income tax-free. Interest is due on the loan (but is paid by either cash, policy dividends, surrender of additions, or by borrowing the interest). Repayment of the loan is due upon the death of the insured (thereby reducing the total death benefit paid to the beneficiary). A loan affects a dividend positively or negatively on the loaned portion of the policy. In addition, repayment is required where the policy is surrendered in total. At such surrender, tax may be due depending on the policy owner’s basis and total cash value. If the policy lapses with a loan, the outstanding loan amount is considered cash received and may be taxable depending on the taxpayer’s basis.