An investment into a life insurance policy will allow its cash value to grow tax-deferred. Universal Life insurance policies typically increase cash value based on
current interest rates, whereas Variable Universal Life insurance policies will potentially grow cash value based on the performance of various stock market
investments. For those who need life insurance and have contributed the maximum amounts to their 401ks or IRAs, investing in a life insurance vehicle is worth considering. Just like the IRA, an investment into a life insurance policy provides tax-deferred accumulation. As far as we’re concerned, an investment into a life insurance policy is often a more prudent choice than an investment into its somewhat close cousin, an annuity. Here are a few reasons why:
1. They both offer tax-deferred growth.
2. The cash value in a life insurance policy is almost always far more “liquid”
(accessible) than annuities that often have limited penalty-free access to the
cash value during the term of the contract.
3. Earnings in a life insurance policy could potentially be withdrawn tax-free
whereas earnings in an annuity are taxable as ordinary income, the highest of
all possible taxes.
4. The potential for earnings within a life insurance policy is typically
comparable to earnings potential within an annuity (if not better).
5. When a life insurance policy is passed to your heirs, not only is the amount
passed tax-free, but the amount is almost always far greater than the cash
value due to the death benefit.