What are the tax-free life insurance options?

Most often, life insurance isn’t taxable. There are some instances where life insurance is taxable, but let’s focus on those that are tax-free life insurance options for now.

• When your beneficiary receives a payout, or death benefit, in one lump sum. Regardless of the cash value, zero taxes will be taken.
• If the payout is part of your estate (when no beneficiary is stipulated), zero estate taxes are taken.
• If your policy allows a payment for cash value upon your death. Your beneficiary won’t pay income tax, unless what you’ve paid into the life insurance is less than what they receive.
• If you need to make a cash withdrawal while you are living, you can take a portion of cash value from your life insurance and the amount is not taxable. The amount withdrawn, will then be deducted from the original amount of your life insurance.
• Annual dividends are received when you buy life insurance from “mutual” companies. These types of insurance companies are set up as policyholders who own that company. When you buy a policy from them you can receive cash dividends. As long as the cash dividends do not exceed the premiums paid that you; the cash is non-taxable.
• When you exchange your permanent life insurance for a term life insurance of lesser value. If there is any cash accumulated, you’ll be given the lump sum (as long as what you’ve paid in does not exceed what is being paid out).
• If you are terminally or chronically ill, and/or have less than two years to live some policies allow you to begin receiving your benefits early and consider yourself your own beneficiary. The cash received is normally not taxed.

While these are some of the types of tax-free life insurance policies. It’s best to find the one that will work for you and your expectations for your beneficiaries. Call Advanced Insurance Concepts today and Jim Rooney will work with you to find the best tax free life insurance policy.