Life Insurance, which best suits your objectives: Term life insurance for the death benefit or permanent life insurance for the tax free ‘income’ and other living benefits?
This video contains information most life insurance agents don’t even understand.
5 Minute Lesson on Life Insurance
Term Life Insurance
Life insurance, in most people’s minds, is a benefit that is paid out when someone dies. The purpose is to compensate for the loss of the income of the deceased. It might be more accurately described as ‘death insurance’ since the proceeds are dispersed after the death of the insured. Often, employers will offer term life insurance coverage on employees as a benefit for the employee’s family. In this case, the term usually lasts for the term of employment.
You may also purchase term life insurance outside of work. Term options are usually for 10 or 20 years and can extend up to 30 years. Renewal of term policies is usually expensive because you’re older and your health condition may have changed.
Term life insurance represents an economical short term or stop-gap solution that you can rent. Generally, purchasers of term life insurance believe they will accumulate enough investments that will allow them to eventually self-insure and they’ll be able to drop their term coverage when they’re older.
Permanent Life Insurance
Permanent life insurance offers a set of ‘living benefits’ in addition to the death benefit. The video above compares benefits and the mechanics and objectives for term and permanent life insurance, but a brief summary follows.
- Distributions from permanent life insurance are not included in income calculations for Social Security taxation. This allows you to receive more of your Social Security benefit rather than lose it to taxes.
- Distributions may decrease the taxable income you withdraw from your qualified plans, 401(k) and tax deferred IRAs.
- You can access your money tax free, penalty free without the restrictions of qualified plans.
- You have the ability to ‘Be Your Own Bank’ and finance investments, start a business, purchase automobiles, college funding, long term care, etc.
- Your principal is protected against market risk.
- You earn a potential double digit rate of return and lock in your gains every year.
The following table summarizes the characteristics of term and permanent life insurance.
| Term Insurance | Permanent Insurance |
| Low cost – initially | Higher cost – initially |
| Cost goes up | Cost remains level |
| No equity (rent) | Builds equity (own) |
| Coverage ends | Coverage never ends |
Permanent life insurance has been used as a ‘tax shelter’ for decades by savvy, wealthy individuals in our country. Many of our elected officials shelter money in these contracts as well, in accordance with guidelines established for their use by IRS tax acts and codes.
Permanent life insurance is one of 3 places you can legally create tax-free income for yourself in our country. For a complete discussion, see Tax Free Income Alternatives
For information how wealth accumulates inside an Equity Index Life Insurance policy, watch the Lock In & Reset Strategy.
To see how distributions can actually reduce the taxes you would otherwise pay on Social Security benefits, click HERE and watch the videos on the case studies, HERE
If you believe tax rates in the future will be higher than they are today, you may also want to investigate how you might capitalize on the tax shelter benefits available in permanent life insurance so you can retain control over more of your hard earned money, protect it against market risks and create a tax free income stream you won’t outlive.
Call Scott Scholz, independent Registered Financial Consultant, 425-829-4110. Or email scott@scottscholz.com to discuss options and applications of this wealth preservation and accumulation vehicle and to determine if it might be right for you.