How Life Insurance Can Protect Against Tax Increases

As a result of the 2017 Tax Cuts and Jobs Act we are currently enjoying some of the lowest tax-rates in recent memory. Nevertheless, these tax cuts are not permanent (what tax rates are?) and the current rates are set to increase at the end of 2025. In other words, in just over 3 years from now tax rates are going to go up unless Congress takes specific action to keep them in place.

However, with our national debt rapidly growing, there’s a good chance that these tax-cuts will not be renewed and it is also reasonable to assume that taxes will go up even more in the future—especially for middle and upper class income earners.

With so much uncertainty related to future tax rates, it’s more important than ever to makes plans and put in place some protection now against tax increases. One way to do this is by using life insurance as a tax-favored retirement savings account.

Life insurance offers tax-deferred growth and tax-free withdrawals (in the form of premium returns and policy loans), similar to Roth IRA and 401k retirement accounts. However, there are some additional tax-free benefits that life insurance can offer that a Roth (and other tax-favored accounts) cannot.

This is not to say life insurance replaces such accounts (it doesn’t), but life insurance is another great way to protect more of your retirement income and family’s inheritance against future tax increases.

Diversify Your Retirement Planning With Life Insurance

Here are three reasons you should consider life insurance as a way to protect your retirement income against future tax increases:

1. Life insurance offers tax-deferred growth and tax-free withdrawals

With life insurance, you can enjoy tax-deferred growth on your investment and, when you’re ready to retire, you can take tax-free withdrawals (via premium returns and policy loans) from your life insurance policy.

2. Life insurance offers tax-free long-term care benefits

If you need long-term care in the future, a life insurance policy with a long-term care rider allows you to accelerate your death benefit to provide tax-free payments to help cover these costs. This is a great way to protect your other retirement savings from being depleted by long-term care expenses.

3. Life insurance offers a tax-free inheritance for loved ones

When you die, your life insurance policy will pay out a death benefit to your loved ones by an exponential multiple of the amount of premium you paid. This allows you to “buy” an inheritance amount at a significant discount and spend the rest of your retirement savings without depleting your children’s or grandchildren’s inheritance.

And because the death benefit is tax-free, your loved ones will be able to use ALL of the benefit in whatever way they choose—including paying for your funeral costs, estate taxes, college education, or to replace your retirement income altogether.

Learn more about how life insurance can help you

We should all be prepared to face the increasing likelihood of tax increases in the future. The good news is that there are ways to protect your retirement income and family’s inheritance from these potential tax hikes. One of the best ways to do this is with life insurance.

So if you’re concerned about future tax increases, be sure to contact us to learn more about how life insurance can help you reach your retirement goals. You’ll be glad you did!