Ed Slot, the famous Tax Advisor, opines on the benefits of using the single biggest benefit in the Federal Income Tax code. This benefit is:
"And as a tax advisor, I can tell you that the single biggest benefit in the federal tax code is the income tax exemption for life insurance." ~Ed Slott
Most people focus on the income tax free death benefit that life insurance provide. However, there are many other benefits that Life insurance can provide, while one is alive.
Life Insurance can provide a means to build wealth tax deferred. Similar to a 401k or an IRA, a permanent life insurance contract grows the cash value tax deferred. However, the IRS does not provide restrictions on when these funds can be withdrawn. Also, at retirement, the funds can be accessed income tax free.
Life Insurance Costs are really paid by...Uncle Sam?
As the cash value grows, the true amount that is being insured by the insurance company is the net difference between the total cash value and the face amount. As previously stated, the cash value is growing tax free, thus the insurance costs are being covered by the IRS. This is a win-win for those utilizing this wealth building strategy.
With Life insurance, the owner of the policy has more control. Compare this to a typical retirement account(e.g 401 k, IRA, and the like), there are more restrictions and penalties with regards to accessing the monies in these account. With life insurance, one can withdraw monies, in many cases, without penalties, at any time. This assumes, of course, the monies are available. The over all point still holds: The owner has more control over his hard earned cash.
Life Insurance, with the use of leverage, allows one of the best vehicles to build wealth over the long haul. One dollar in a life insurance policy can do multiple things: It can work as a cash accumulator, it has a death benefit pay out, it can pay out long term care benefits, it can grow tax free, the death benefit is passed down tax free, and on and on. All with simply the same dollars placed into the policy. Whereas with an IRA or 401k type account, it does not have multiple uses with that same dollar.
Having a solid life insurance program is a vital cornerstone in anyone's wealth building program. With these benefits, and many more, a solid life insurance policy can turbo charge one's wealth. It is typically overlooked, but it should be taken more seriously when placing together a financial plan.