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Tax Free Retirement with Investment Grade Life Insurance
Wednesday, 27 May 2020 13:42

Investment Grade Life Insurance can be used to provide retirement income that's tax-free as long as the policy is properly structured and funded.

What is Investment Grade Life Insurance?

The kind of life insurance that pays excess interest or dividends, above and beyond what is necessary to guarantee policy endowment.

There are two general types:

  • Whole Life - fixed premium
  • Universal Life - flexible premium

These two general types can be divided further into many sub-categories:

Whole Life

  • Participating Whole Life - pays non-guaranteed dividends that add to the guaranteed cash values
  • Interest Sensitive Whole Life - pays non-guaranteed excess interest above the guaranteed interest rate

Universal Life

  • Current Assumption Universal Life - general account product
  • Variable Universal Life - separate account product
  • Indexed Universal Life - general account product

The most modern form of life insurance today is Indexed Universal Life insurance and it can be further sub-divided again into two more specific categories:

  • Accumulation Oriented Indexed Universal Life
  • Protection Oriented Indexed Universal Life

It is important to differentiate between these two products because one is designed for maximum cash value accumulation and the other is designed for a maximum death benefit for a given premium structure. Both products may have living benefit riders, such as Critical Illness and Chronic Illness, as well as riders that pay benefits for Long Term Care.

As a rule, if your objective is Tax-Free Retirement income, then you probably want a policy designed for maximum cash value accumulation. If you aren't sure what kind of policy is appropriate, that is where a qualified insurance agent can help.

Red Flags to Avoid: Any agent that says one type of policy is always better than another type of policy. With every policy design, there are trade-offs. Only you can decide which policy, or portfolio of policies, is right for your situation.

Using Life Insurance as an Asset Class and Retirement Savings Plan to provide a Tax-Free Retirement income is generally suitable for people who have already maxed out their Roth IRA, their Roth 401(k) if available, and who have at least ten years or more before they will need income. In some cases, where a person's income isn't "earned" such as rents, bond interest payments, stock dividends, royalties, proceeds from the sale of real property, or the sale of stock or business interests, inheritances, gifts, lottery winnings, alimony, separate maintenance payments, or other windfalls, and therefore ineligible for contribution to a Roth IRA or other Qualified Plan, then using life insurance in lieu of a Roth IRA and Roth 401(k) may be appropriate.

For more information, call today (800) 680-5596 or complete the form below:

 

Brent D. Gardner, CLU, ChFC

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