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Supplemental Retirement Withdrawals
While cash value is a necessary component of any permanent life insurance policy, participating Whole Life, Universal Life, and Variable Universal Life policies lend themselves to overfunding of premiums for the purpose of generating more cash value than the policy needs to sustain itself. That accomplished, it's possible to withdraw and/or borrow cash values from an existing policy to help supplement retirement income; under current tax law, cash value loans are not subject to income tax. There is one important caution: The policy must remain in force until death or a substantial amount of what has been taken out of the policy may be subject to current income (not capital gains) taxes. Those interested in such a design should consult with a professional life insurance company to be certain they are allocating appropriate premiums at the moment the life insurance policy is acquired.
Charitable Considerations
Americans gave almost $250 billion to charity in 2002. In addition to annual donations and testamentary bequests; a growing amount of such largess is coming directly from the proceeds of life insurance on the lives of benefactors. A life insurance policy can be purchased and owned and paid for by the insured, with the charity as the named beneficiary (typically allowing for an estate exclusion of the amount of the proceeds), or a life insurance policy can be donated directly to a charity (typically allowing for an income tax deduction for the cash value of the particular policy at the time of the gift). In the latter example, the benefactor may continue to make cash gifts to the charity to support the policy premiums, or the life insurance policy may have been "paid up" at the inception of the transfer. Life insurance provides leverage between the annual premium and the ultimate death benefit. Therefore, regardless of the mechanics of transfer, life insurance purchased for charitable purposes is, for many, the only opportunity to make a significant capital contribution (perhaps resulting in a named building or facility) without the outright transfer of the capital itself.
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