Life insurance could have two roles as a tax-sheltered investment:
- The earnings on a cash-value policy are not taxed until you take them out.
- The proceeds of a death benefit settlement are not taxable to your survivors.
Death benefit is not taxable for your survivors, and using the same logic, you may compare the taxable versus the non-taxable gain: Let's assume that you currently earn $80,000 a year, and you buy a $200,000 life insurance policy to help your family pass two-and a half years without your income. If you die, your survivors get a full $200,000, and without tax.
Because the proceeds for death settlement and the earnings of a cash-value life insurance policy are both tax deferred, they serve as excellent tax shelters.
Because the proceeds for death settlement and the earnings of a cash-value life insurance policy are both tax deferred, they serve as excellent tax shelters.
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