Having enough resources to live comfortably in retirement is a top priority for many. Yet, being hit with an unexpected tax burden is likely something we'd all like to avoid. Unfortunately, taxes don't stop when your paycheck does, but there are certain investments that provide retirees with better tax advantages than others. A life insurance policy with a cash value component, often referred to as a whole life policy, is one way to set up a tax-free source of income in retirement as well as providing some tax advantages in the coming years.
What is a Whole Life Insurance Policy?
Much in line with its name, a whole life insurance policy provides protection for your entire lifetime. There are several types of whole life policies, but the most common type of policy is a level premium policy that provides an affordable life insurance solution with continuous policy premiums. The death benefit will remain the same on the policy for the life of the contract, but this type of insurance policy also develops a cash value. The cash value accumulates over time and can be borrowed against to supplement retirement, pay for emergencies, and help pay for college.
Some whole life policies also pay dividends, which can be used either to increase life insurance protection or to grow cash value. Owners of a whole life insurance policy will find that they receive several tax advantages from this particular coverage.