Taking Advantage of Your Life Insurance Tax Benefits
Making sure that your family has greater financial security for the future is certainly the most important reason to have life insurance. However, there are two benefits that you may not be aware of that can help both you and your beneficiaries: A tax-free benefit payout, and a tax-free loan against your policy.
Benefit Payouts Are Tax-Free
When you pass away, naturally it won’t be an easy time for your family. Along with their grief, they will be dealing with your final expenses and other necessary arrangements.
The life insurance payout that your beneficiaries receive will help eliminate some stress. And the fact that the payout is not taxable is certainly a great benefit too. Your beneficiary or beneficiaries will be able to use the entire payout amount without having to worry about paying taxes on it later.
Take Out a Tax-Free Loan
Your beneficiaries aren’t the only ones who can get a tax break with life insurance. If you have a permanent life insurance policy – a whole life policy – it most likely includes a cash value component. If so, you can reap benefits through its cash value.
Here’s how:
Over time, Gerber Life sets aside a small percentage of your payment, which grows after the initial policy years into what becomes the cash value of your policy. The available cash value represents how much money you’d get back if you ever decided to cancel your policy. It also can be a small source of ready cash that you could borrow against if needed.
When you borrow against the cash value of a permanent life insurance policy, you’ll be charged interest (the percentage for a Gerber Life policy loan is 8%), but you won’t have to pay taxes on the loan amount because it’s not considered a distribution of income unless your policy lapses with an outstanding loan amount.
As long as you pay back the policy loan and interest, the payout to your beneficiaries won’t be affected. However, if there is debt against the policy at the time of your death, the amount owed would be deducted from the beneficiary payout.
Buying life insurance for your family is one of the smartest financial decisions you can make. Call us at 1-800-704-2180 to learn about our permanent life insurance policies.
Please Note: Taxes vary by state and you should consult a tax advisor for more information. Articles and other information included on this website are intended for the general interest of our readers and are not intended to express the positions or views of Gerber Life or to provide or constitute legal, financial, health or other advice. Gerber Life makes no claims representations or warranties as to the accuracy, completeness, or appropriateness of this general interest information for your particular circumstances. If you need legal, financial, health or other services, you should contact a duly licensed professional.
