Taxes FAQs

What is a 7702 plan?

A 7702 plan is a life insurance product linked to section 7702 of the IRS Tax Code. It allows for certain tax benefits on whole life insurance policies structured for cash value, provided they don’t become “overfunded” and turn into Modified Endowment Contracts (MECs). The tax benefits of a 7702 plan can include tax-free growth of interest and dividends, tax-free income in retirement, an estate-tax free death benefit, tax-free policy loans, growth of cash value can be used tax free, and an income tax-free death benefit.

What are the tax benefits of an annuity?

Annuities are tax deferred, meaning they grow tax-free until money is withdrawn. Annuities can be structured in a variety of ways to compliment the owner’s financial goals. To find the right annuity for your unique needs, schedule a free consultation with a Wealth Strategist.

Are insurance premiums tax deductible?

Life insurance premiums are not tax deductible, regardless of the type of policy. Disability and long-term care insurance premiums may be tax deductible if they exceed a certain percentage of the policyholder’s adjusted gross income. Consult with a tax advisor for details.

Are there tax penalties for withdrawing money from a life insurance policy?

Withdrawing money from the cash value of a whole life insurance policy or Wealth Maximization Account does not incur taxes. However, if a policy lapses or is withdrawn beyond the cost basis of the policy, taxes may apply. Funds used for a policy loan are typically not taxed, provided the loan is paid back in full.

Does the beneficiary have to pay taxes when a whole life insurance policy pays out?

Beneficiaries do not have to pay taxes on the death benefit of most whole life insurance policies or Wealth Maximization Accounts. Exceptions may apply to very large death benefits (over $11.58 million per individual, per 2020 estate tax laws) or if a business is the beneficiary, but the average policies are commonly tax free. To discuss your individual policy, contact your Wealth Strategist.

What are the tax benefits of whole life insurance policy?

Whole life insurance policies, including Wealth Maximization Accounts, feature some of the most lucrative short- and long-term tax benefits available in these areas:

  • Policy loans
  • Cash withdrawals
  • Interest and dividends
  • Income
  • Estate and legacy
  • Growth