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ASSET – A resource having economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.

Traditionally, life insurance has been thought of as a necessary expense needed to protect a family’s financial future, but it has the potential to offer far more when you consider its advantages as an asset.

A Key Component of a Diversified Portfolio

  • Leverage a limited number of premium payments into a sizable death benefit to protect your family in the event you die prematurely.
  • Provide access to cash value which could be utilized to supplement retirement income or help fund a child’s education.
  • Transfer wealth created over a lifetime with an income tax free death benefit. The life insurance death benefit even has the potential to be estate tax free if properly owned and structured.

For these reasons, life insurance is more than just a necessary expense – it is an important asset to own within your portfolio.

Permanent Life Insurance Benefits

  • Income tax free death benefit paid to beneficiary
  • Tax-deferred growth of policy cash values
  • No contribution limits due to income
  • Potential for income tax-free withdrawals and policy loans
  • No 10% penalty tax on cash value distributions prior to age 59 ½

A note about life insurance distributions:

Tax-free distributions assume that the life insurance policy is properly funded, is not a Modified Endowment Contract (MEC), and distributions are made up to the cost basis and policy loans thereafter. Distributions may need to be reduced, stopped and/or premium payments may need to be resumed if the policy does not perform as expected or to avoid a policy lapse. Should the policy lapse or be surrendered prior to death of the insured, there may be tax consequences.

Preparing For the Ifs in Life

Life insurance is for living. Wouldn’t you live better now if you had more confidence in your ability to:

  • Create financial protection for your family
  • Grow equity with which to preserve your lifestyle
  • Leave a legacy to the ones you love

These reasons are why a cornerstone of many successful families’ financial plans is life insurance. It is a flexible product that offers death benefit protection and may also offer an opportunity to save for your own future. Evaluating all available financial opportunities may help you reach your financial goals. Life insurance is one of those opportunities – providing protection for today and helping prepare for tomorrow.

Consider Income Taxes When Funding Your Portfolio

Taxes can have an impact on how much of your savings you ultimately get to use to enhance your lifestyle.

Taxes can also have an impact on how much of any remaining assets are received by your beneficiaries. In the last thirty years, U.S. income taxes have been comparatively low. The top Marginal Tax Rate for the highest income earners is currently 35%, but the average top rate over the last one hundred years has been nearly 60%.

Even though the future income taxes is unpredictable, it would be reasonable to assume they will continue to evolve over time, experiencing high and low periods. You can help protect retirement assets from being diminished by taxes by allocating savings to assets that permit tax-free distributions. This action has the potential to enhance your retirement income because your savings will be sheltered from income tax, regardless of the rates in effect at the time you need income.

4 assets with tax-advantages

  • Roth IRAs
  • Roth 401(k)s
  • Municipal Bonds
  • Cash Value Life Insurance

Contributions to Roth IRAs are limited to those with income below certain levels and Roth 401(k)s have very limited availability, only 19% of plans in 2009 offered this option. For families who need life insurance’s death benefit protection, cash value policies may provide the ability to protect one’s family today as well as the potential to supplement retirement income tomorrow.

General Overview of Federal Tax Features
Feature Life Insurance Qualified Plan/ Traditional IRA Deferred Annuities Roth IRA/ Roth 401K Municipal Bonds
Funding/Contribution Limits NO YES NO YES NO
Potential Income                     Tax-Deferred Accumulations YES YES YES YES TAX EXEMPT
Income Tax-Advantaged Withdrawals/Loans YES NO NO YES TAX EXEMPT
Income Tax-Free Insurance Death Benefit YES

 

N/A NO N/A N/A
Penalty Tax for Early Withdrawal Only if MEC YES YES YES NO
Cost of Insurance Changes YES NO YES NO NO

 

The table above provides a general overview of certain Federal tax features of the listed asset options. These highlighted features do not present a complete picture of applicable Federal tax rules. Federal tax law is highly specific and depends on individual facts and circumstances. Please make sure to consult your personal tax and legal professors in your particular situation before purchasing any financial product.

Taking a Closer Look at Cash Value

MEET JACK

Jack Martin is 35 and owns his own landscaping company. He has recently divorced and needs to make sure his two children are provided for financially, should he suffer an untimely death. He has decided to purchase life insurance to meet his need.

Jack has always reinvested almost all of his profits back into the company and now he feels the need to catch up on preparing for retirement. He has a SIMPLE IRA in which he invests the allowable maximum each year and feels comfortable he has an additional $10,000 per year that he can devote to insurance premiums and added savings.

Jack’s financial professional shows him an illustration for a MetLife Whole Life policy. Assuming Jack qualifies for a preferred, non-smoker rating and pays $10,000 premium each year until age 100, the guaranteed death benefit on the policy would be $909,506. The death benefit has the potential to increase with higher crediting rates or dividend payments that are non-guaranteed features of the policy.

Jack’s financial professional explains that the cash value grows slowly in the early years of the policy, but can grow into a significant source of funds for supplemental income by the time he retires. The he shows Jack what the policy’s cash value may mean to him at age 55, 65, 75 or 85 depending on his future income needs.

Based on the policy’s non-guaranteed dividends, Jack would earn slightly more than a 4% rate of return on premiums paid if he waits until retirement age to take any loans or withdrawals from the policy. However, If Jack initiated a moderate supplemental income stream from the cash value using withdrawals and loans – being careful not to lapse the policy- he may realize his income on a tax-free basis. A significantly higher rate of return would be necessary to distribute an equivalent amount of income from a taxable account, due to capital gains or ordinary income taxes.

If Jack does not need additional income during his retirement, he can either continue paying premiums, allowing the cash value and death benefit to increase, or he could allow future dividend payments to reduce his premium outlay and keep the death benefit relatively stable.

Jack really likes the flexibility of this life insurance product and moves forward with his application for the policy.

   

MetLife Whole Life Policy Cash Value

 

 

AGE

 

 

Guaranteed

Cash Value

 

Assuming Current Dividend Crediting Rates

 

Cash Value Yield
55 $214,643 $310,721 4.03%
65 $373,807 $644,438 4.56%
75 $543,885 $1,153,122 4.62%
85 $697,591 $1,879,646 4.52%

 

Life Insurance as a Value Added Asset in Your Portfolio

While the policy’s death benefit is the primary reason for purchasing life insurance, it is important to know that the policy you choose may provide more value to your family than just a death benefit.

Protecting income for you loved ones is valuable in itself, but permanent life insurance can easily transition to providing supplemental retirement income should you enjoy a long and healthy retirement. Finally, it can transfer any remaining death benefit to your beneficiaries in the form of an income tax free legacy.

The flexibility to help you protect, accumulate and transfer wealth can make life insurance a significant value within your portfolio. When attempting to prepare financially for the future Ifs in life, it is important to include assets that can change and grow with you. A diverse mix of products may better enable your portfolio to adapt to future accumulation, protection and transfer needs. Life insurance deserves to be considered as an integral asset within your portfolio.

Insure With The People You Trust

Many people who buy life insurance do so because they know it can add value to their financial portfolio as a means of supplementing a number of different financial goals in addition to providing death benefit protection. We want you to feel in control of your assets. Contact Kasmann Insurance and let our trained life insurance experts help you navigate through the myriad of concerns, companies, and questions you may have.