5 Tax Advantages of Life Insurance

When planning for the future, having a solid financial foundation is essential. Life insurance helps ensure that one’s loved ones have financial security if something happens while also providing certain tax advantages that make investing in a policy even more attractive.

Here are five key benefits to know about before getting started with life insurance.

1. Death benefits are generally tax-free

One significant benefit of life insurance is that death benefits paid by the insurer are generally not subject to federal income taxes or transfer taxes (such as estate taxes). This means that any payouts from a policy, regardless of how much coverage is bought, will be sent directly to beneficiaries without being reduced by taxation expenses or other associated costs.

2. Potentially greater investment growth over time

Depending on what type of permanent life insurance policy one chooses, some policies can provide additional tax advantages by allowing their premium payments to grow and potentially be withdrawn or borrowed against without incurring any taxation fees.

3. Premiums can be tax deductible

One may be able to deduct annual premiums paid for certain types of life insurance policies. This includes dividend-paying whole life policies and certain types of permanent universal life insurance policies.

4. Flexibility & control over funds

Some permanent life insurance products allow policyholders to use funds from their cash value account to pay premiums if they ever need emergency money or have extra finances on hand. These funds may also be available for borrowing against (with interest) later.

5. Money can be transferred tax-free

Some policyholders may also be able to transfer money from one life insurance policy to another without paying taxes. This can be especially helpful if someone wishes to adjust their coverage amount or need additional funds for other financial planning needs.

Is life insurance tax deductible?

Is life insurance tax deductible? Annual premiums may be tax deductible depending on the policy. However, it’s important to remember that these deductions may not always be available, especially since they depend on certain factors such as income level and types of policies chosen.

It’s best to consult a financial advisor or tax professional who can help explain the policy’s unique situation and determine if any potential deductibles are applicable.

Comparing life insurance

When looking into life insurance, there are two primary types of policies – term and permanent.

As the name suggests, term life insurance is a policy that offers coverage for a fixed period of time (e.g., 10, 20, or 30 years). On the other hand, permanent life insurance provides lifelong coverage as long as premiums are paid on time and in full. There are a few types of permanent life insurance, and depending on the policy type, some policies may offer additional benefits such as tax savings and investment growth opportunities.

Before making any decisions, it’s essential to compare the different types of policies available and understand which one best fits one’s particular needs.

Bottom line

Life insurance is a great way to help provide peace of mind and ensure that loved ones are cared for in the event of an unexpected death. Investing in life insurance helps protect those close to the policyholder and provides several tax advantages that can help optimize their finances for long-term success.

Always research and consult financial professionals when necessary to make informed decisions along the way.

Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.  

Aflac Coverage

Life (A68000 Series) – In Arkansas, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. In New York, NY68100-NY68400. Term and Whole Life (B60000 Series) – In Arkansas, Idaho, Oklahoma, Pennsylvania, Texas, & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Group Whole Life (Q60000 Series) – In Arkansas, Delaware & Oregon, Policy Q60100M. In Idaho Policy Q60100MID. In Oklahoma, Policy Q60100MOK. In Texas, Policy Q60100MTX. Group Term Life (Q60000 Series) – In Delaware, Policies Q60200M. In Arkansas, Idaho, Oklahoma, Oregon & Texas, Policies ICC18Q60200M, ICC18Q60300C, ICC18Q60400C.

Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, coverage is underwritten by American Family Life Assurance Company of New York.

Tier One Coverage

Final Expense (Life) – In Arkansas, Delaware, Idaho, Oklahoma, Oregon, Pennsylvania, Texas, & Virginia, Policies ICC21-AFLLBL21 and ICC21-AFLRPL21; and Riders ICC21-AFLABR22, ICC21-AFLADB22, and ICC21-AFLCDR22.

Tier One coverage is underwritten by Tier One Insurance Company.

Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY or VA. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations and exclusions.

Aflac’s family of insurers include Aflac, Aflac New York, Continental American Insurance Company, and Tier One Insurance Company.

Aflac WWHQ | Tier One Insurance Company | 1932 Wynnton Road | Columbus, GA 31999.

Aflac New York | 22 Corporate Woods Boulevard, Suite 2 | Albany, NY 12211

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