Life Insurance Myth Debunk - Death Benefits to Beneficiary is generally tax-free and more

Photo by Lukas Juhas on Unsplash


Author: Andrew Lee
About 1 minute read.

I am surprised that there are mis-concept on life insurance product. Here are a few listed out to clarify them.

  • Life insurance death benefits (proceeds) paid out to beneficiary is generally tax-free.
  • Term Life has no cash value, so you cannot do loan on your policy, but you can on a Universal Life policy which has cash value.
  • Life insurance policy has Living Benefits now, not just Death Benefits.
  • Renewal on Term life is based on your attaining age. In plain word, for the same coverage, it gets more expensive.
  • Loan amounts you receive from a non-MEC policy are generally tax-free (as long as the policy is not surrendered or has not lapsed) but not interest-free.
  • Life insurance is NOT expensive, it could be as low as $50-100 per year.
  • Premiums for individuals are not tax-deductible, but by setting a qualified 501(c)(3) beneficiary could be deductible for the year. For business purposes such as executive bonus is also deductible by the way you structure it.
  • Disability income is tax-free if you paid with after-tax money. It won't be tax-free if it is paid with per-tax money or paid by your employer. If both contributed, there is a calculation ratio.
If there are other ones you heard about, please let me know. It is important for people to know that life and disability insurance is a risk transfer concept to restore insured to its original state via monetary compensation. It provides the protection for hardship when accident happens to keep you going. Beyond that, others also purchase life insurance to leave a legacy to their heirs, to cover funeral expenses, or pay outstanding expenses and estate taxes, or utilize as supplemental income for their retirement planning.

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