Broker Check

Is Life Insurance a Sound Investment?

Most people don't look at life insurance from an investment perspective. However, it is becoming a popular option among corporations and trusts because it provides the best after-tax returns compared to other investment vehicles.

The easiest way to see what life insurance can and cannot do is to make a simple comparison with other investment options. Make sure that the comparison is fair and that all costs, including tax effects, are analyzed on a year-to-year basis for both the insurance and the alternative investment. Don't use investments that have completely different risk profiles; your comparison results will not be accurate.

If it is properly structured, life insurance can provide the following tax advantages:

  • Your heirs will receive the death benefits tax-free.
  • The cash values grow tax-deferred and any withdrawals are tax-free until the cumulative investment (in the contract) is recovered.
  • A loan from the policy is not taxed as income.
  • The death benefit will pay off any outstanding loan balances income tax-free at the time of death. The death proceeds can even be estate tax-free if the policy is owned by an Irrevocable Trust.

A life insurance program can be customized to meet your individual needs and objectives. If you are after the tax-advantaged cash value accumulation, you can minimize the life insurance benefit. In many cases though, the benefit is the most valuable feature since it immediately creates a capital sum at death that cannot be duplicated by any investment.

If you would like to discuss the tax benefits of a life insurance investment, please contact our office.