1. Life insurance is a non-reportable asset when applying for federal aid through a federal program such as FAFSA (Free Application for Federal Student Aid), so funds in your life insurance policies may not restrict your children’s potential for acquiring government-funded college loans.
2. Life insurance proceeds usually go to your beneficiaries income tax free.
3. Assets in your life insurance policy can be withdrawn and used income tax free via loans and surrender of basis.
4. If you choose, you can withdraw sometimes as much as 90% of your policy’s resources and still keep the policy’s integrity.
5. If you borrow from your policy, you will be charged an interest rate, but you are also credited with a rate. If the loan rate is 8%, and the credit rate is 7%, your loan cost is only 1%. (This is a general example only; always consult your insurance advisor.)
6. Being allowed to borrow from your policy is an advantage. If you had to cancel your policy to acquire its funds, the money may be subject to income tax at your tax bracket’s rate. It could be better being charged a 1% rate, per the example, than a 30% tax bracket rate for a forfeited policy.
7. Life insurance is a good tool for making a deferred compensation arrangement with your executives or key man. For example, if you want to secure the services of one of your executives, you can have the company purchase a cash value life insurance policy that defers compensation for 10 years. If the executive remains the 10 years, the proceeds from the policy act as a form of a retirement plan; if the executive should die beforehand, the proceeds can go to the family.
Have questions? Want to learn more? Send us an email. We’d be happy to help!
To your wealth,
Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
President of Synergetic Finance