Permanent Life Insurance Tax Considerations
The term “permanent life insurance” is a fairly broad term that can cover any sort of permanent life insurance policy. There are some kinds of permanent life insurance such as whole life, variable life and universal life policies. These can be bought in blocks or suites, with each policy costing the same amount. They provide financial protection for survivors after the policy holder dies.
A permanent life insurance policy offers two main benefits: it provides an investment option and coverage in the event the insured dies. The investment options can be in any number of places including certificates of deposit, mutual funds, and even stocks and bonds. In the event the insured dies, the cash value of the policy is ready to go. If this is the case, then the policy will expire and can be renewed if the death benefit is still provided. If it doesn’t renew, then the policy lapses and must be started up again from scratch.
Most permanent life insurance policies have a built-in way to build cash value. Some policies offer this flexibility as part of their benefits, while others may require more negotiations. Premiums vary by the cash value option selected and policy holders pay into the policy at regular intervals. Policyholders have the option to take out a loan against the policy and use the cash value to purchase additional policies.
For many consumers, the idea of having a permanent life insurance policy makes sense. If a consumer is at least 45 years old, then there is a good fit for a permanent life insurance policy. Life insurance is a risk that is shared between all policyholders. Premiums increase as a person gets older and the benefits diminish as the insured’s age increases.
An early death could mean an amount that is paid to loved ones immediately. The death benefits can also be used to provide funds for home care and in some cases for debt obligations. The benefit amount and the time period in which the payout is made affect how much premiums can be required. It is important to understand the terms and conditions of any permanent life insurance policy.
Universal policies are another type of permanent life insurance policy that can be taken out. They are often less expensive and do not have the penalties associated with the variable universal policies. Universal policies are taken out to cover funeral costs and are tax deductible. The only drawbacks to a universal permanent life insurance policy is that the premiums may be tax-deductible and they may run for a longer period of time than a whole life policy. A whole life policy has a fixed premium price for the lifetime of the policy and the death benefits remain consistent throughout the term.
Burial insurance is another type of permanent life insurance policy. This type pays out once the insured passes away, generally within about ten years of the policy being purchased. Burial insurance coverage can help to pay for expenses such as embalming or cremation of the insured. It can also pay for the burial of the insured’s whole life beneficiaries. Burial insurance policies are usually limited to a fixed amount for the life of the insured.
Income tax considerations for permanent life insurance can be complicated. The main factor is the lifetime benefit amount. The longer the beneficiaries live, the larger the residual income tax can be. The other factor, which can have a significant effect on the amount of income tax paid, is the length of the term coverage. If the insured does not die during the lifetime of the policy, the death benefit is paid to the beneficiary and no income tax will be paid on the death benefits.