Tax deductions
When choosing an insurance policy, the first thing to decide is whether to choose between permanent and term life insurance. Both types have their pros and cons; but a certified financial expert Hazel Secco believes permanent life insurance can bring tax-free dividends.
“Though dividends are not guaranteed, the policies from reputable companies often offer around 3% tax-free dividends,” she notes.
For those looking to save for retirement, Secco explains that dividends can accumulate over time and become a tax-free fund.
However, using insurance as a savings instrument is a long-term strategy. “Ideally, you can stick with this approach for at least 10 years, but 15 to 20 years is better, as you can take full advantage of the compounding effect of tax-free growth,” she adds.
Variable Life Insurance
Variable life insurance is a type of life insurance that combines insurance coverage with investment options. The policy includes the option to invest premiums in a variety of investment accounts, such as stocks, bonds, or money market funds. Investment results can differ, which is reflected in the cost of the policy.
Secco says that as you age, insurance premiums increase, which can hinder your savings, so it’s important to buy policies while you’re young.
Long-Term Care Riders
When choosing an insurance policy, Secco notes that insurance companies offer products with long-term care riders, which can be part of a retirement plan.
“These riders can either pay for nursing home care or provide income to family members who are caring for you,” she says.
Income increase by means of loans
A certified financial planner and accountant David Peters explains that you can borrow against the cash value of a permanent life insurance policy.
In US life insurance policies with a savings component a portion of premiums is used to build cash value that accumulates over time. The policyholder can borrow against this accumulated value from the insurer. The interest rate on such a loan is usually low, and the loan itself does not require approval, since the policy is used as collateral.
These loans can be used as an additional source of income during retirement. The money is tax-free. After the death of the insured, the loan amount (along with accrued interest) will be deducted from the insurance benefit.
“This will reduce the amount of insurance benefits to your beneficiaries, as the loan amount will be deducted from the insurance coverage when paid out. But for extra retirement income, you can take it. This will save money on taxes,” says Peters.
These four tips help wealthy people use insurance policies not only to protect their loved ones but also to increase their financial capabilities and retirement savings.
Source: http://www.businessinsider.com/financial-planner-rich-people-get-more-life-insurance-2024-8
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