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Financial Health

for Healthcare Professionals

Life Insurance: 3 Income Tax Advantages

Most people probably ing on particular circum- • First, he has a cost basis in his policy
don’t consider their life stances. If your life insur- of $132,840 (the total premiums that he
insurance policies when ance policy is part of a large paid). He could take a partial surrender of
tax season rolls around. estate, talking to a financial the cash value from his policy up to this
Perhaps they should. professional might be amount, and it would be income-tax free.
Life insurance, in partic- worthwhile. • In addition, Steve has the option to
ular whole life insurance, borrow against his cash value at any time.
can help you and your 2. The total cash value The amount borrowed will not be taxable
beneficiaries avoid a hefty accumulates on a tax- as income, even if it is in excess of his cost
bill for the tax man. deferred basis. basis.
The advantages outlined Whole life insurance Careful, though. A certain class of poli-
here are particular to per- builds up cash value over cies receives less favorable tax treatment
manent life insurance, PROVIDED BY HOWARD time as you pay premiums. than what is described above when taking
including whole life insur- WOLKOWITZ ON This is money that grows loans and distributions and may be subject
ance policies. It’s possible BEHALF OF without the IRS taking a to a penalty tax.
for other kinds of insur- MASSACHUSETTS bite. And it can become an Also, tapping into the cash value of a life
ance to have some of these important nest egg for your insurance policy reduces its value and
features as well … but it’s MUTUAL LIFE future. death benefit and increases the chance the
not a given. INSURANCE COMPANY 3. You can access the cash policy will lapse. And if a policy lapses
(MASSMUTUAL)
value of the policy on a tax- with an outstanding loan in excess of the
1. The death benefit is advantaged basis. cost basis, it’s taxable.
generally paid out income tax free. Money borrowed or taken from the cash Again, if you are thinking of taking a
That’s a pretty straightforward advan- value of a life insurance policy is not sub- distribution it might be worth checking in
tage for your beneficiaries. Life insurance ject to taxes up to the “cost basis” – the with a financial professional about your
policy payouts can be pretty hefty and amount paid into the policy through pre- particular situation.
avoiding a major tax bite can be conse- miums. Provided by Howard Wolkowitz, a financial repre-
quential. By contrast, the government will To understand how this works, take a sentative with Coastal Wealth, courtesy of
typically tax most retirement plan pro- hypothetical case of “Steve,” who bought a Massachusetts Mutual Life Insurance Company
ceeds when taken by beneficiaries. whole life policy in 1980. (MassMutual).
There are instances where federal and There are a couple of ways that Steve © 2016 Massachusetts Mutual Life Insurance
state estate taxes can kick in on the pro- could access his policy cash value during Company, Springfield, MA 01111-0001
FY1090
ceeds of a life insurance payout, depend- retirement: CRN201809-204860

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4 February 2018 southfloridahospitalnews.com South Florida Hospital News