Taxes are a part of life that most people dread. There are so many rules, regulations, and loopholes that you can find yourself in waters over your head very quickly. Anything that can decrease the amounts due to the government is a great thing for us.
Life Insurance policies are one of those things that can help your taxes or hurt them. It all depends on how you approach it. Let’s take a closer look at how life insurance can save you on your taxes.
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It is understood that this particular aspect of your life insurance policy has no real affect on you, because you will have moved on and have no need for such trivial things. To the loved one you left behind, though, death benefits are not a trivial thing.
It is a part of a life insurance policy that will help them pay off your funeral expenses, your debts, and any other bills that may be acquired during the final processes. The amounts that are received from the insurance company is not usually taxed, as long as the pay-out goes to a financial dependent that is related to the deceased. If the beneficiary is not legally dependent the amounts will be taxed.
What this means is that most of the time if the beneficiary is the spouse, or children living at home (usually under 18) the death benefits will not be taxed. On the other hand, if the beneficiary is a child or friend over 18 that does not live at home, it will be taxed. With that in mind be careful who you set the beneficiary as. If you want your kids to get any of the money left over after expenses you may want to put your spouse as the beneficiary, and then add into your legal will what your wished are.
Some life insurance policies will build up money over time as you pay the premiums. This amount will not be taxable by the government because it is not considered to be a direct source of income. To check which policies offer this you use an online comparison platform so you can choose the best life insurance quote that builds money without being taxed.
You can get these policies that grow with the market fluctuations, or ones that have a set rate of growth. Either way has good and bad points, but each of them will help you built a decent nest egg that can be borrowed against if needed. If you do borrow against your policy, remember that as long as you do not borrow more than what you have put into the account, you will not be taxed to withdraw it. If you tap into the money that has been earned on the account then you will be taxed on it, so be aware of your number and decide accordingly.
One thing that everyone asks is if your life insurance premiums are tax deductible. This would be no because it is considered, by the government, to be an expense that is voluntary. They highly suggest that everyone has some type of coverage to help the economy keep debt paid off, but they will not cut you any breaks on the expense.
They do turn the other way when your benefits are paid out to the proper people, though. This is good news for your beneficiary because taxes are the last thing that you will want to be thinking about. Life insurance is coverage that you need to have, and if set up as described above, it will prove beneficial to all parties involved.