What would you think if you had access to a pot of cash that not only accrues interest; it can also be tapped tax-free?
With the purchase of a Whole Life policy, you do. All you have to do is pay a fixed premium and you get in return a tax-deferred interest-bearing account, known as cash value.
You can take out a loan free of taxes at an attractive interest rate.
Done properly, a tax-free loan on life insurance can offer you a source of liquidity and tax-free income in retirement. While term insurance only covers you for a limited period of, let’s say, 10 or 20 years, whole life insurance is an excellent tool to protect your heirs from estate taxes because a) the coverage remains in place as long as the premiums are paid up, and b) the death benefit is generally paid out free of taxes.
The Whole Life policy from your association and AMBA offers a cash value account that grows at a guaranteed rate of interest. Customers pay a fixed premium for the duration of the policy.
Here’s how the strategy works: If you withdraw cash from your policy up to the amount you had originally invested, you would receive it free of taxes, but any earnings that are taken out may be subject to income taxes.
That’s why loans are attractive: If you borrow, you use the policy as collateral and take a tax-free loan from the cash value.
Tapping the cash value from your policy for additional liquidity needs is also smart because the interest rate for repayment is generally low – especially when compared with the 10 percent plus you’ll find on a three-year personal loan or the extremely onerous rates you’ll be obligated to from a credit card company. And borrowing from your policy can be a better option than if you were to use funds from your 401(k), because the latter will cause you to incur income taxes and you could even wind up in a higher tax bracket.”
That said, whole life insurance can complement other components of your retirement savings — including your 401(k), IRAs and other accounts — but it should never make up the lion’s share of your wealth. It’s a tool to diversify your portfolio and to provide another option should you need the funds.
ASBA can provide you with a Whole Life policy that guarantees acceptance, regardless of wealth issues or your lifestyle. Even better, you can now buy your whole life policy online! Learn more.