The Jacobs Company
Supplemental Retirement Program

Cash value life insurance policies are increasingly used to augment existing retirement vehicles (IRAs, pensions, investments, etc.). Generally, a life insurance policy is written, and large premiums are paid into it in the early years. The cash values build up on a tax- deferred basis, meaning there are no current taxes due. Eventually, by combining the preferred loans and partial withdrawals (in correct proportions) the consumer can withdraw more money from the life insurance than was originally invested without paying taxes on the gain. Eventually, the income tax-free death benefit pays off the loan. If a consumer decided to pay $3,000 annually, he/she would buy the smallest amount of life insurance the law would allow. Minimal death benefit allows most of the premium to accumulate at interest (not spent on mortality expense). Care must be taken not to exceed the premium/death benefit ratios the law allows. Doing this will allow the life insurance contract to retain it's tax preferential treatment. After loans and partial withdrawals are taken from the policy (say, after retirement), it is important to keep the life insurance policy in force. Surrendering the policy could trigger the recognition of a significant income tax bill. At death, there is no income tax problem because life insurance death benefits are income tax free. When there is already a need for life insurance, the approach listed above can be a powerful supplement to existing retirement plans.

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