Life Insurance to avoid taxes?

[Account Closed]

Is it possible to avoid paying capital gains if i get a life insurance?

I heard life insurance has 3 benefits

1. It pays you 6%.

2. Your money is untouchable.

3. Tax shelter

[Zachary Paschke]

The tax savings on life insurance are like the tax savings on an IRA. You either get to pay in with tax free money (if you write it off as a qualified business expense) and your beneficiaries owe taxes on the growth or you pay with post tax money (most common) and the death benefit is income tax free.

Death benefits may be subject to state estate taxes (as will be any money you leave). 

The protection afforded to life insurance varies based on state law and are fully dependent upon your beneficiaries ability to manage the money. What this means is the death benefit money is protected, but the second that money is commingled with a family/ individual account they’re may no longer be any legal protection. Your beneficiaries should always be told to consult a lawyer if there’s any pending legal or financial obligations on either side (owed by you or them). Until consulting with a lawyer, they should leave the money with the insurance company. If they must take the money, they should put it in its own account until instructed by a lawyer on what to do. Keep in mind the lawyer is really only needed if you or you’re family isn’t looking to protect that money from creditors (assuming there are creditors) or pending legal action. 

There are no companies offering a guaranteed 6% return on your money right now. @Thomas Rutkowski is right. That sounds like an Indexed Universal Life policy. That is a policy where the cash value is indeed to a fund like the S&P500. What the company will do is use your guaranteed interest on the account to buy options on the fund you’re indexed against. If the fund goes down you don’t loose any money (you just don’t get any growth - or little growth, there’s a lot of available options) if the fund goes up they exercise the option and you’re money grows within the cap allowed by the policy (usually as high as 6-7%). 

Some policies can be set up to borrow from. There are certain companies that offer products designed to borrow money from (interest rates designed to zero out against your income from the policy). 

All this said, the average person has little to gain from trying to dodge federal income tax on the growth of a savings account. Life insurance policies usually just work best as life insurance (not investment accounts). I can even now sell term policies up to age 121 almost kills 1/2 the use cases for cash value policies. 

Feel free to reach out if you have any other questions. Not I’m not an account or lawyer, just a life insurance agent.