Funding an education
Whether as a supplement to a college savings plan (like a 529 Plan) or on its own, a permanent life insurance policy can provide you with flexibility to meet college expenses by using your policy’s cash value to take out tax-free loans to help pay for any college expenses (qualified or not).
This could help potentially qualify for higher financial aid amounts because current FAFSA™ guidelines don’t count your life insurance policy’s cash value as an asset.
Providing income in retirement
A life insurance policy can be a key part of a retirement plan to help provide supplemental retirement income. Compared to Roth or traditional IRAs, a life insurance policy may allow you to save more with no caps on eligibility based on income. Advantages of using life insurance include:
- No penalties for accessing the cash during your working years and no requirement that you take distributions by a certain age.
- Properly structured policies provide the owner with tax deferral during the lifetime and the ability to access cash value on a tax preferred basis.
Gift to grandchildren
Some grandparents today are choosing to provide future financial benefits to their grandchildren. One way to do that is to buy a life insurance policy on the child and then gift it to them when they become adults. The cash value inside the policy may be used to:
- Purchase a first home
- Start a business
- Supplement retirement income
- Provide cash to their spouse or great grandchildren at a time when they may need it most
Find a fit for you
Life insurance will always be foremost a product where your loved ones would receive a death benefit should you die. But it definitely is not one-size-fits-all product, so it’s important that you talk to a financial professional to determine the right fit for you.
There are many considerations you’ll need to make, such as timing, the amount of death benefit to meet your needs, the right type of life insurance or your insurability. Your financial professional can help you explore the ways life insurance can benefit you.
FAFSA® is a registered trademark of the U.S. Department of Education.
Distributions, for any purpose, are not taxed under current law provided the policy avoids Modified Endowment Contract (MEC) status and remains in force.
Withdrawals from 529 plans are tax-free if used for qualifying education expenses.
Clients should consult their own tax advisors regarding the comparative tax benefits of 529 plans, as well as the potential taxation of distributions from both 529 plans and permanent life insurance policies.
If you are considering the use of policy loans as retirement income, you should consult your personal tax adviser regarding potential tax consequences that may arise if you do not make necessary payments to keep the policy from lapsing. Consult your financial representative before taking a withdrawal or loan, as withdrawals and loans may cause loss of the no lapse guarantee. In addition, withdrawals may incur substantial charges and tax penalties.
Certain policy loans may result in currently taxable income and tax penalties. If tax-free loans are taken and the policy lapses, a taxable event may occur. Loans and withdrawals, if taken, will reduce the death benefit. Withdrawals (partial surrenders) and loans from life insurance policies that are classified as modified endowment contracts may be subject to tax at the time that the withdrawal or loan is taken and, if taken prior to age 59½, a 10% federal tax penalty may apply. Always consult with a tax advisor regarding your particular situation. Optional riders may be purchased for an additional cost.
Products are issued by and guarantees based on the claims-paying ability of the AuguStar Life Insurance Company and AuguStar Life Assurance Corporation. Product, product features and rider availability vary by state. Issuer not licensed to conduct business in NY.