In a pandemic impacted world, it is becoming increasing known that life insurance should be one of the building blocks of an individual's personal financial safety net.
When properly purchased and structured, life insurance delivers cash, on a guaranteed basis, in the future when it is needed to help pay the costs of unexpected life events such as death, disability, chronic illness or a long-term care need.
Despite these inherent benefits, most consumers and some advisors have forgotten that life insurance has a number of tax breaks that are focused on the broad middle class. These benefits don't pop out when an annual Form 1040 is completed, but they are real and add up to significant tax advantages for the consumer.
This month is Life Insurance Awareness Month, and it's a good time to talk to consumers about both the obvious benefits and the benefits that help policyholders build wealth.
Here are the top six tax advantages, in my view.
1. No Limit on the Amount Purchased
In comparison to qualified plans, there is no limit on the amount of life insurance that can be purchased subject only to the underwriting limitations of issuing life insurance carriers.
Using cash value life insurance as a tool to save for the future and to generate supplemental retirement income are valuable benefits in a world where households need to save more as corporate pension plans disappear.
2. Tax Deferral on Earnings
Permanent life insurance policies can generate cash value over time as premiums are paid and excess cash beyond the policies' cost is generated. All cash income earned is not taxed currently and is able to earn interest on the taxes not currently paid. As we face the prospect of increasing future income tax rates, this benefit could become even more valuable.
3. Income-Tax Free Death Benefit
One of the most forgotten tax benefits of a life insurance policy is that the death benefit is income-tax free. Beneficiaries receive the policy's death benefit, usually in a lump sum, and don't have to report the payout as taxable income.
They can use it as they please. The fact that the payment is received without any federal or state income taxes multiplies its value to the beneficiary.
Harry N. Stout has been the president of Fidelity & Guaranty Life, deputy chief executive of Old Mutual Financial Network, and managing director of Insurance Insight Group. He is also the author of 
