6 reasons your clients corporations should buy cash value life insurance
Cash value life insurance can provide a source of long-term savings and investment. As the policyholder pays premiums, a portion of the premium is set aside in a cash value account that accumulates over time. The policyholder can borrow against this cash value or withdraw it, subject to certain conditions and fees. This growth is tax-deferred, and the gains are not taxed inside an insurance policy.
Cash value life insurance can provide financial flexibility. In addition to providing life insurance protection, the cash value component of a policy can be a source of funds for emergencies or other unexpected expenses. There are a few ways to access this cash, each with their ownpro’s and cons.
Cash value life insurance can provide tax benefits. Life insurance policies grow tax-free. The investments inside the policy can compound with no annual tax implications. However, if the policyholder decides to take money out of this plan, they will then be taxed as income. Cash value life insurance can be a great corporate savings account.
Cash value life insurance can be a source of collateral. In some cases, the cash value of a cash value life insurance policy may be used as collateral for a loan or other financial transaction. This asset class is viewed favourably from lending institutions.
Cash value life insurance can be a useful tool for estate planning. The cash value component of a cash value life insurance policy can be used to help pay estate taxes or other expenses, allowing the policyholder's assets to be distributed according to their wishes. The CDA account allows for the fund to be taken out of the corporation tax-free upon the death of the shareholder.
You can fund a corporately owned life insurance policy with corporate after-tax dollars. This makes the cost of the insurance cheaper as your corporate after-tax dollars are avoiding the personal tax brackets before purchasing the insurance.
