Life insurance enjoys several major tax benefits:
Tax-free investment income. Permanent life policies (whole life, universal life, variable life) include an investment account-the cash value. Investment income isn’t taxed inside these policies.
Tax-free access to your money. You can access the policy’s cash value via loans and withdrawals. Again, this benefit applies to permanent life insurance.
Tax-free death benefits. You probably won’t owe income tax on the proceeds of term as well as permanent life insurance. The death benefits may be subject to estate tax but the new tax law reduces that threat.
In case of your untimely death, your beneficiaries will receive tax-favored death benefits. On the other hand, assuming that you reach retirement age, you can draw on your policy for tax-free income. Just be sure to tap the tax with care; if you strip the policy you’ll owe a huge payment to the IRS.
