- 2-Minute Article
Life Insurance as an Asset
Growth and protection with cash value life insurance
In order to help clients reach their goals, financial professionals should work with them to help design a strategy that includes growth and protection. Your clients need to know how important life insurance can be in their overall financial plan. Especially cash value life insurance, which offers the protection of life insurance, and, over the long-term, has the potential to accumulate cash value on a tax-favored basis that can be used for living needs if properly structured.1
How Cash Value Life Insurance Works
With cash value life insurance, clients pay insurance premiums that provide an income tax-free death benefit for beneficiaries. While the death benefit can protect a client's loved ones, cash value is something that the client can use while they are living. Cash value grows tax-deferred and builds like equity builds in a home. After that point, the cash value of the policy continues to grow. This can be useful for clients' portfolios in a few key ways.
1. Tax Advantaged
If properly structured, cash value life insurance grows tax-deferred, so clients do not have to pay taxes on gains as they accrue. With cash value life insurance, no taxes are owed on gains as the policy grows, until withdrawn by the customer. The tradeoff is that depending on the type of product, life insurance requires ongoing payments or a certain amount of cash surrender value to stay in force.
2. No contribution limits
For high income individuals, it may be easy to exhaust the tax-advantaged savings opportunities from qualified plans and IRAs. For clients in need of life insurance, cash value life insurance can provide the needed death benefit protection and the opportunity for tax-advantaged cash value accumulation, and there are no contribution or income-based limits.
First, there's no free lunch. Loans and withdrawals will reduce the cash value and death benefit. But cash value life insurance can offer some flexibility when it comes to accessing the cash value while the client is still living. Distributions are also generally treated first as tax-free recovery of basis and then as taxable income. In the first 15 years of the policy, distributions accompanied by benefit reductions may be taxable if they are prior to basis recovery.**
4. Cash Value Life Insurance
While cash value life insurance may not be right for everyone, it can be a useful tool to diversify a client's portfolio if they want life insurance with cash value accumulation potential and long-term, tax-advantages.
To learn more about how cash value life insurance can be a useful tool for your clients, check out Brighthouse Premier Accumulator Universal Life.SM