Who would have ever thought that one of the most attractive tax deferred, cash accumulating vehicles could be found inside a permanent life insurance contract? Imagine that, insurance policies that have outperformed the S & P 500 over the last 15 years with respect to cash accumulation. If you haven’t heard this concept, I strongly suggest that you educate yourself on all of the benefits that you have been missing out on.
One of the ways to accumulate cash within a permanent life insurance company is through an indexed universal life policy. These products allow for capped gains in the market while expelling any possibility of losing a penny to market volatility. This is possible through a concept known as annual reset. Annual reset allows you to earn a portion of the market upside, while bypassing the market downside; usually over the span of a calendar year. Added to which, with this concept it is not possible to lose a penny of your money when the stock market takes a hit. This is a philosophy that many investors and businesses are openly embracing, especially with tax advantaged withdrawals.
Since indexed universal life (IUL) is a form of permanent life insurance, it is subject to an accounting measure known as FIFO. FIFO is an acronym in accounting known as first in, first out. This means that all of the principle that is deposited into an IUL policy is able to be withdrawn before you are required to pay ordinary income tax on the interest earned. In other words, interest is only paid when all of the principle is withdrawn. This is one of the only financial vehicles that will allow for funds to be withdrawn without having to pay the tax upfront. Most all other cash accumulation vehicles require that taxes on your interest must be paid first upon withdrawal, usually as ordinary income tax or capital gains tax (assuming you’re lucky enough to have any return). Let’s take a look at an example. John has an indexed universal life policy worth $225,000, of which $40,000 consists of earned interest. Assuming that John makes his first withdrawal on his policy in the amount of $50,000, he will not have to pay any taxes on this withdrawal. Since the interest on the policy’s cash value is $40,000, all of the principle ($185,000) will have to be withdrawn before any taxes are due on the interest. These unique features are attracting businesses by providing tax breaks they are currently not receiving.
Businesses are using permanent life insurance as a vehicle that can accept deposits, while simultaneously withdrawing funds that do not trigger a taxable event. This gives the business the advantage of paying invoices while utilizing tax deferral. Another attractive benefit is that they allow business owners to have the comfort of knowing that their family’s interests are protected with an accelerated tax free death benefit. Business owners also have the capability of protecting themselves against the unexpected passing of a key employee, while allowing that employee to accumulate funds (exempt from market volatility) for future retirement needs. Many business owners realize that unforeseen emergencies such as the death of their top salesman, or the death of an executive, can be devastating to the bottom line both in the short term and the long term. Costs associated with the passing of a business owner or a key employee can cause a company to collapse. These policies protect against these concerns while allowing for tax free income (if properly structured) for their income planning needs.
How can they do this in a depressed financial environment? Insurance companies offering permanent life insurance products have the advantage of basing their long term goals on effective mortality tables. Every policy owner must complete certain underwriting criteria in order to qualify for these unique benefits. Think of it as a substitute to good credit; the analogy being, the healthier you are the better your policy should perform. Since all policy owners are in good health and are expected to live longer (usually able to reach the mortality rates in life) the insurance company benefits from extended profits due to their policy owners averaging a longer life.
As this financial recession lingers on, tax deferred vehicles that can allow for both tax deferral and tax advantaged withdrawals will take center stage sooner rather than later. Policy owners who have been able to take advantage of indexed universal life products over this past decade have had the benefit of skipping over all of the down years while receiving attractive moderate return on the upside. Do you currently have a tax deferred vehicle that can allow for tax advantaged withdrawals? If not, what is your contingency plan against the threat of rising taxes needed to knock our federal deficit back to a manageable level?
Cal Burgess specializes in unique core concepts designed to eliminate all market volatility. These proven strategies have helped thousands of investors by serving as a contingency plan to their portfolio. Please visit www.AboutUniversalLife.com in order to learn more about these products.
Article Source: EzineArticles.com/expert/Cal_J_Burgess/1338191
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