The only instance when the amount taken out as a loan would become taxable to the owner, is if the policy lapses with the loan outstanding, and more money was taken out of the policy in total than paid into it.
New York, NY (PRWEB) May 30, 2014
LifeAnt.com, a company that is devoted to helping people save money by offering them life insurance quotes, has just posted a new article on their website that looks at how and why the Internal Revenue Service does not like life insurance. Titled “5 Reasons the IRS Hates Life Insurance,” the article, http://www.lifeant.com/5-reasons-irs-hates-life-insurance/ offers a fascinating look at why this may be the case.
As Thomas Rockford, the founder of LifeAnt.com, notes in the article, life insurance offers a great way for people to pass along tax-free money to their loved ones. In many cases, life insurance proceeds are not taxable for beneficiaries, which Rockford says does not sit well with the IRS.
In addition, Rockford notes, whole life insurance policies pay dividends, which most people use to pay their premiums. Any extra cash may be used to purchase paid up life insurance. As a result of doing this, the dividends will grow in their cash value along with the amount of life insurance. Provided the money remains in the policy, the owner will not have to pay any taxes on it.
Another reason Rockford feels that the IRS hates life insurance is that people can take tax-free loans against the value of the policy.
“Normally, owners can take out almost the entire cash surrender value of their life insurance in the form of a loan,” Rockford wrote, adding that loans from life insurance are never taxable, and they can be taken out for any reason, whenever the owner wants.
“The only instance when the amount taken out as a loan would become taxable to the owner, is if the policy lapses with the loan outstanding, and more money was taken out of the policy in total than paid into it. In other words only the gain taken by the owner is taxable.”
Furthermore, Rockford wrote, the cash value of life insurance can be transferred to another policy or annuity tax-free, with a 1035 exchange. When the cash value of a life insurance policy grows to an amount that is larger than what the person paid into the policy, a 1035 exchange lets the owner of the policy preserve the tax deferred earnings by transferring the funds to a different life insurance policy or annuity—all tax free.
Anybody who would like to learn the additional reasons why the IRS is probably not terribly fond of many life insurance policies is welcome to visit the LifeAnt.com website; there, they can read the article in its entirety as well as get a free life insurance quote.
Established in early 2013 by life insurance broker and financial adviser Thomas Rockford, LifeAnt.com hopes to become the top provider of life insurance quotes on the internet. For more information, please visit http://www.lifeant.com/5-reasons-irs-hates-life-insurance/.
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