Life Insurance FAQ:

Did you know that most people sign a life insurance policy without knowing many of the basic facts surrounding the terms and conditions of their personal policy? And that certain information could save you thousands of dollars on premiums and contracts? Here we'll discuss three of the most important, yet least asked, questions on life insurance.

Is the cash value of life insurance taxable? — Cash value life insurance policies come in three different forms: taxable, partially tax-free and tax-free.  In many cases, anything that can be considered gain may be taxable.

Taxable Life Insurance policies- — In taxable life insurance policies, every dollar you accrue can be taxed, whether it exceeds the initial amount you invested or not. Generally, in these types of claims, you cannot withdraw cash during your lifetime and you have deferred tax status. These policies are often referred to as Modified Endowments.

Partially Tax-free Life Insurance policies — Partially tax-free life insurance policies are one of the most common types of life insurance policies. In partially tax-free policies, you have a deferred tax status, so you pay no taxes until money is withdrawn. At the time of your death, only the portion of your accrual that exceeds what you have paid into your policy will be taxed.

Tax-free Life Insurance policies — Tax-free life insurance policies are just that. Tax-free. You will not pay income tax on your interest, earnings, or loans from your policy and your heirs will not pay income tax on the proceeds of your death benefits. You can also avoid potential estate taxes and probate costs through a cash value life insurance policy.  Please also note that true cash value life insurance policies fall under the heading of Permanent Life.

What is Variable Life Insurance? — Variable Life insurance is full-life policy dependent on the success of stocks and bonds. It is most often paired with Whole Life insurance to provide some stability to the policyholder with guaranteed minimum death benefits. Your Variable Life policy allows you to invest your money in the stocks and bonds of your choice. Because of this, it is considered a security and is issued with a prospectus. The cash value of Variable Life policies is dependent upon the success of the holders' investments. Investment-savvy individuals without commitments to heirs most often select variable Life insurance.

What is Last Survivor Life Insurance? — Last Survivor Life Insurance is a two-person policy, typically for husband and wife, that provides immediate cash to your heirs for your final estate settlement costs--these costs can be taxes on your property and death, your debts, your mortgage, etc. However, this policy is only effectual after the second spouse has died. This is the most cost-effective method of insuring your life if the funds will not be needed in immediate response to your death.

Remember, when choosing a life insurance policy, it is important to have all of the facts to aid you in the making the best decision for your future needs.