Tax-Free Income in Retirement

One of the benefits of IUL, and of cash-value life insurance generally, is that policy loans are tax-free. In a properly selected, well-designed IUL policy, loans are simply liens on the account value and do not deplete it. Therefore, crediting of the account continues to be based on the full account value. 

Thus, a well-designed policy that has accumulated substantial cash value can provide tax-free income in retirement. Of course, it can be a source of tax-free money to the owner at any time during the insured’s life. (This is an important difference between life insurance and Roth IRAs – IRAs generally limit access to funds until the owner has reached age 59½.)

Tax-free income is a good thing, just by itself. Income tax rates are currently at historically low levels. If future tax rates increase (as many are predicting), having a source of tax-free income will be a big benefit.

An added benefit is that the less taxable income an individual or couple has, the lower the tax bracket and its corresponding income tax rate. With proper advanced planning, it is possible to eliminate income tax entirely, as explained on the subpage SHOREVIEWSM Zero-Tax Planning.

Cash-value life insurance is also an efficient vehicle for eliminating all tax legally forever, as presented on the subpage Life Insurance Dynasty Trust.

As emphasized throughout this website, life insurance provides this tax-free benefit in a virtually risk-free manner – its cash value grows when market indices go up, but never goes backward as a result of market downturns.