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  • Sung-Yen Sammy Tsai

Providing Additional Tax-Free retirement income

While permanent life insurance policy can be an excellent way to build estate value, it can also be used as an additional tax-efficient source of retirement income.


The most common method of doing is by using the "cash surrender value” of the policy as "Collateral" for a loan from a financial institution.

  1. The financial institution (banks) gives the individual a series of loans, for which the insurance policy is the collateral.

  2. Under current tax laws, the loan proceeds are received tax-free.

  3. The loan arrangement can be structured so that no interest is payable on the loan until death.

  4. Upon death, part of the death benefits goes to pay out the loan and the remainder goes tax-free to the named "beneficiary"

Individuals can also access the value of their insurance policy through direct withdrawl of its cash-value, or through a policy loan directly from the insurance company.

However, a withdrawl or policy loan could trigger tax consequences depending on the "Adjusted Cost Basis" (ACB) of the policy


For this reason, a loan arrangement from a third-party financial institution is the most common method of generating additional income in retirement.



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