Most people understand the general concept behind life insurance. When you pass away, your chosen beneficiaries receive a payout from the life insurance company. This can be purchased on a term basis such as 10, 15, 20 or 30 years, or as permanent life insurance which typically covers you until age 120.
Term life insurance is typically cheaper and easier to qualify for, but permanent life insurance also offers a range of planning options that can improve your estate planning while also providing tax saving opportunities and enhanced liquidity. Permanent life insurance allows you to accumulate cash value in the policy over time. This cash value then increases on a tax-deferred basis.
So as long as your policy remains active, the gains within the permanent life insurance policy are not taxed. However, if the policy is surrendered for cash value or the policyholder chooses to withdraw cash from the policy, there may be tax implications. When it comes to estate planning, permanent life insurance can also be advantageous.
The death benefit received by beneficiaries when you pass away can be a lump sum of funds to cover final expenses and estate taxes. This is typically tax-free, and you can help preserve the value of your estate for future generations while also protecting the well-being of your loved ones. You’ll want to work with an attorney who is familiar with how life insurance fits into the bigger picture to ensure that you have selected the proper policy and structured it appropriately with regard to beneficiaries.