How Do You Create A Tax Shelter With Life Insurance Contracts?
Most people think of life insurance as a necessary evil, but with careful planning, life insurance contracts can create useful tax shelters. Whole and universal life insurance have three elements–life protection, administrative costs and cash value. Term life insurance has only the first two elements. In the past, many financial planners have encouraged clients to avoid whole life insurance, and buy term life insurance instead. The theory is that, by investing the difference in cost, the client will come out ahead. This advice doesn’t take into account the tax advantages of whole and universal life insurance contracts. Here’s how to use life insurance contracts as tax shelters. Understand that whole and universal life insurance is considerably more costly than term insurance. A portion of the higher premiums build cash value in the policy which grows each year because of the guaranteed interest that accumulates on the principle. This interest grows tax-free as long as it stays in the
