who knows about investing in life insurance as a way of gaining tax free income what are the pros and cons?

Answer 1

Did you have a specific question about this topic? Generally, I don't think it's a very good idea. I'd actually love to have a debate with GoodGyrl about this.

The problem that I see is that it requires handling a very conservative asset in an aggressive manner. There are changes that can occur to the policy beyond your control such as a change in the dividend (whole life) or changes in the mortality and administrations costs (universal life).

In other words, much of the sales conversation revolves around the taxability, but that is a limited focus. If the plan hinges on a dividend, that is too much business risk of one company in my opinion, and dividends cannot be guaranteed. If the plan is based on a universal life chassis, the interest rate you earn is half the story, the other half is what the company takes away (mortality and expenses). These charges can fluctuate at the whim of the company, have nothing to do with company stability, and can have an equivalent impact of 3% or more on your returns.

This type of strategy is complex enough it can be mis-understood even by the people who sell it.

Answer 2

The basic premise is, life insurance procedes are tax free to the beneficiary. You can avoid estate taxes, by purchasing life insurance with the premium, even if you're on your death bed, if you have a lot of estate which would be subject to heavy estate taxes.

Example: You have an estate worth $10,000,000. You're dying. You don't want to give the government half, in estate taxes, so you buy 9 $1,000,000 life insurance policies, and name 9 people beneficiaries. It COSTS you $10,000,000, BUT, you avoid paying $5Mil to the feds in estate taxes - you can actually pass along more that way.

This is the ONLY time "life insurance" is an investment. And most of the time, a clever accountant or estate planner can find another way to pass along the money, at an even lower cost to you.

Answer 3

The right whole life insurance product can be an amazing asset for building and protecting wealth tax free and/or deferred. Just know who you buying from and the rating of the insurance company. Bottom-line: the agent should do a complete financial analysis of your situation and goals before you choose any strategy.

Answer 4

Look into getting an IBRP (said "I burp")--insurance based retirement plan. Basically you get a UL or VUL policy and overfund it, with the intention of taking the income when you're retired to supplement your retirement income. You want to consult a professional who regularly sets up these types of insurance plans (most agents don't even dabble, let alone know the full scenarios for which these can be beneficial) and also consult your tax advisor. Good luck.

Answer 5

As I understand life insurance ,
You give them $$$ you already paid taxes on ,
Then later , they give you back part of your $$$ .

As you already paid taxes on it , it would be really dumb to pay taxes again .
Heck , giving them $$$$ to hold , then,
give you back Part of it , does Not seem like the best revenue choice .

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