When a life insurance policy is properly structured, a consumer can borrow or take partial withdrawals that actually exceed the amount of the original investment (assuming that the cash value is high enough) without taxation. The consumer allows the cash values to grow on a tax deferred basis. By taking preferred loans or partial withdrawals, cash value of the life insurance contract can be accessed without income tax. Many policies are designed so that the insured borrows funds on a long term basis with no intent to ever pay off the loan. When the insured eventually dies, the loan is paid off by the income tax free death benefit. No income tax is due to the beneficiary of the life insurance.

This document was last modified on July 29, 1999 by LMLeber

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