Retirement & Financial Planning Report

Accessing the cash value of a policy takes patience but it's there. Image: Atstock Productions/

With all types of life insurance policies, the payout at death usually can be received by the beneficiary, free of income tax.

Permanent (“cash value”) policies have other tax benefits, too:

* Tax-free buildup. Inside the cash value, any investment earnings won’t be taxed, in most situations.

* Tax-free access. You can tap your cash value by taking loans and withdrawals. As long as you don’t pull too much money from your policy, no tax will be due. Your agent can help you determine how much you can take from the cash value, tax-free, without having the policy lapse.

However, accessing the cash value takes patience. In most permanent life policies, the first-year premium goes largely to the agent, as a sales commission. It can take years for enough cash value to build up so that tax-free loans and withdrawals are practical.

You should plan on waiting at least 15 years (20 is better) before tapping the cash value of your insurance policy. If your time horizon is that long, tax-free loans and withdrawals from a permanent insurance policy can be a valuable supplement to your retirement income.

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