Life insurance: Helping clients achieve tax avoidance

Three-quarters of affluent clients said they haven’t discussed taxes with their financial professional, Rob Petzold, regional vice president with Kansas City Life, told members of an industry association at a recent event.

Petzold and Chris Bor, Kansas City Life regional vice president, discussed ways to help clients achieve tax avoidance during the National Association of Insurance and Financial Advisors Apex East event.

“Everybody is seeking tax relief. Where will they get it?” Petzold asked.

An advisor should make tax avoidance a top priority for clients, he said, adding that advisors should ask clients what steps they have taken to avoid taxes. Clients’ common responses to that question are a 401(k) account, an individual retirement account or annuities, or investing long-term capital gains. The problem with these responses, he said, is that those investments are “tax-me-later investments.”

“That’s not tax avoidance – that’s taxing down the road,” Petzold said. “Tax avoidance means ‘tax me never.’”

Two ways for clients to achieve “tax me never,” he said, are a Roth IRA and life insurance.

“Life insurance is an excellent way to achieve tax avoidance,” he said.

Bor said advisors can help clients avoid what he called “tax bombs in 401(k)s and IRA” through life insurance. Indexed universal life insurance can provide supplemental income in retirement. A supplemental income retirement plan provides a Roth IRA alternative.

Cash value life insurance is the only financial asset that creates an immediate tax-free step up at death, Bor said.

Bor and Petzold listed 15 reasons why IUL is a good option for retirement income.

1. Cash accumulation: Supplemental retirement income or your own personal bank for emergencies.
2. Tax-deferred growth: No tax due on appreciation of cash values.
3. Tax-free access to cash accumulation: Withdrawals up to basis and loans.
4. No mandatory distribution: No required minimum distributions at age 73 as required with qualified plans.
5. Does not creation of taxation of Social Security benefits: Unlike RMDs.
6. Protection against market loss: When the market declines, your policy is protected by contract guarantees.
7. Upside growth potential: When the market index rises, your policy receives indexed credits based partly on the upward movement of the index, subject to a cap, participation rate or multiplier.
8. Downside protection: Your policy’s cash value will never decrease due to market volatility.
9. Protection from creditors: Level of protection determined by state creditor protection laws for life insurance and annuities.
10. Living benefits from your death benefit: Riders can be added to an IUL policy to gain access to a portion of the policy’s death benefit to help take care of living needs.
11. Access to cash at any age: Providing cash should a need arise in retirement.
12. No minimum age or income requirement: Life insurance does not have health and financial requirements.
13. Continued policy funding if disabled: Available with the purchase of a disability payment of premium rider.
14. Death benefit: Tax-free benefit for heirs.
15. Avoids probate: Death benefit is paid directly to heirs.

 

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.

© Entire contents copyright 2023 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.