Insurance World

It’s never too early to think about tax season, even though many of us consider it to be the least wonderful time of the year. Increasingly savvy investors are taking advantage of investments that allow them to defer a portion of their tax burdens.

If you’ve exhausted your other tax deferral options – contributed the maximum allowed by law to your 401(k) or IRA – it may be time to consider life insurance or an annuity. Products such as variable annuities and variable universal life policies all offer distinct tax deferral benefits, according to Patty Reiners, assistant vice president of marketing for Ameritas Direct, a division of Ameritas Life Insurance Corp.

“For investors who have taken full advantage of other tax-deferred investment options, variable annuities and life insurance is a good place to put additional investment dollars,” Reiners says. “A lot of information, products and options can be found online. Investors should be sure to seek out ‘no-load’ products that don’t charge sales commissions, fees or overhead.”

Some tax-deferred investment options include:

Variable Annuities

Provided by insurance companies, this product allows the investor to participate in a range of investment options advised by well-known mutual fund companies. Taxes are deferred on the income generated by these investments. Trades within the investment are not taxed either, Reiners says.

“A variable annuity can help you grow your money on a tax deferred basis,” Reiners says. “Plus, if you invest in a no load annuity it is immediately liquid. You can put money in today and withdraw it tomorrow. You pay no taxes on the growth until you withdraw it as income, and then it is taxed as ordinary income.” IRS penalties could apply for withdrawals before age 59 1/2.

By deferring taxes on current growth, the investment has the potential to grow faster because there is potentially a greater, constantly increasing amount of money working for you generating more money.

Further benefits of variable annuities include the ability to make unlimited contributions, and a guaranteed death benefit for your beneficiaries in most annuities. If the annuity purchaser dies, beneficiaries receive at least the amount of the original investment, even if the actual value of the annuity has declined. And of course, if the annuity has gained in value, the beneficiaries receive the higher amount.

Variable Universal Life Insurance

Like all life insurance products, variable universal life insurance provides lifelong insurance protection and funds long-term financial goals. Additionally, it can be funded in a way that allows you to invest a portion of your premium in tax-deferred investments, just like a variable annuity, Reiners says.

Properly structured, the death benefit is income tax free to the beneficiary without the delays and expense of probate.

“You can also structure the product to allow you to withdraw from the policy,” she says.

“The withdrawal taps your contribution first and the investment income last. And since you’ve already paid taxes on your contribution, you are not taxed again when you withdraw it. You pay no taxes on the investment until you withdraw the income.” Withdrawals will reduce death benefit and could cause the policy to lapse.

Term life insurance policies provide a limited coverage period, which is determined by the policy owner. Term life insurance rates are actually the cheapest form of life insurance, but there are different rates for different people. This is because once the term of the policy is up you don’t receive any payout from the policy. If you take out life insurance at a young age, you will get much better term life insurance rates than if you wait until you are older.

The total cost of your term life insurance rates can be tricky. Some term life insurance policies appear to cost more, but may, in fact, be cheaper when you look at the total cost of the term life insurance policy. For example, annual renewable policies increase your premiums every year and thus may appear to be more expensive than level term policies where the premiums never increase (although the initial premiums for a level term policy will be higher). But, in fact, level premium policies may involve higher costs over the policy’s full term, and become particularly expensive when you try to renew your policy at the end of the term. This is why you do have to compare term life insurance quotes.

Some of the factors that influence your term life insurance rates are:
·
Whether or not you smoke. Tobacco users are twice as likely to die as nontobacco users while they are insured. Life insurance companies take this into account when they set their premium and cash benefits levels. You can save from 20% to 30% on premiums by quitting smoking.

·
Medical Record. If you have a terminal illness, it is unlikely that any life insurance company will issue a policy. In the case of heart disease, you will get a policy but your rates will be high

·
Occupation. if you work in a dangerous occupation, such as working on a ship that carries gas, this will put you into a higher bracket when it comes to getting rates for term insurance. You will have to shop around to compare term life insurance quotes if you are in this category.

Term life insurance rates vary a lot, and you can do something about your premiums by taking some decisions to become more healthy, like giving up smoking.