Life insurance is generally viewed as protection for the breadwinners of a family and a way to fund favorite charities. It’s used in corporate coverage for business partners and key employees. But whole life cash value insurance has been viewed a conservative savings vehicle that can generate tax-free income via policy loans.1
Policy loan distributions are not includable for the provisional income test to determine Social Security benefit taxation.
Many conservative savers use whole life insurance as a bond alternative that has done quite well against the yields of ten-year treasury rates. The dividends and projected performance are not guaranteed, but the contractual cost of insurance and interest credited is guaranteed. That fundamental fact can redefine the low beta risk using a whole life insurance policy. Conservative savers appreciate the contractual guarantees, which are subordinated by many blue chip mutual companies with strong balance sheet financials. You still have a death benefit, but the design of the plan is based on tax-deferred accumulation and tax-free distributions via collateralized policy loans.
Whole life insurance, as a bond alternative, is gaining some significant traction in advisory circles, who are looking to protect their clients from undo exposure in the bond market, especially in an increasing interest rate environment recently triggered by the Feds. The long term view of cash value life insurance as a conservative savings product appears to be strengthening among consumers who are adverse to risk.
1 Policy loans from a TAMRA compliant non-modified endowment contract kept in force for the life of the policy insured are viewed as collateralized policy loans and not characterized as a form of income.