One of the main benefits of using life insurance as an investment is the fact that if you have named a beneficiary, that beneficiary will receive the insurance proceeds tax-free.
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If you have taken out a policy that builds cash value, as the cash builds in the policy, these amounts are not taxable. Upon your death, should the cash value exceed the amount of the face value of the policy, your beneficiary will receive the face value, plus the cash value, tax-free.
Life insurance can be used to cover future taxes that will become due upon the death of the insured. If the insured has a large estate value, that amount will be taxed when it is passed on to the survivors. To cover this tax, you should talk with an accountant or life insurance agent to decide how much insurance will be needed.
When you buy a life insurance policy that pays dividends, these are also usually not taxable. This is because life insurance dividends are a return on premium that has previously been paid by the insured.
Insurance dividends do become taxable at the point when they exceed the amount of premium that has been paid. Also, if in a small business, the insurance premiums paid by the insured have been taken as tax deductions, any dividends would be taxable.
Life insurance is the only investment that is not taxed as it grows and when the investment is passed on to the beneficiary at the death of the insured. This makes it a good vehicle to get your wealth to your loved ones without forfeiting a good part of it to taxes.