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A Better Way to Lead the Tax Conversation
Wealthy clients often need death benefit protection. They also need tax-free income to help reduce taxes in retirement. Only one product, life insurance, can meet BOTH these needs. Lead an actionable client conversation with these six discussion points.
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Actions | Key Point | Additional Points for Discussion |
|---|---|
| Life insurance can provide a death benefit for the people you love. But, I know you’re focused on retirement. Let me tell you why I brought up life insurance. | Life insurance also has the potential to offer a source of supplemental tax-free income in retirement.¹ |
| Many people don’t realize how much taxes they may be paying in retirement. | Taxes can have a significant impact on your income and your lifestyle. Life insurance can provide a tax-free source of supplemental retirement income. |
| Income from qualified retirement savings plans and many other investments is often taxable. For the affluent, up to 85% of their Social Security income is taxable, too. Generally, income from a life insurance policy’s cash value is income tax-free. | You can supplement your income with loans and withdrawals from any cash value that has built up in your policy. Keep in mind that, if you overfund your life insurance policy, that is, pay in more than allowed under federal government rules, the tax treatment will change. If this happens, it will be classified as a Modified Endowment Contract, also called a MEC. The money you take from the policy will be taxed less favorably than if taken from a non-MEC policy. This applies to a MEC when you take loans or make withdrawals. It also applies if you use your policy’s death benefit as collateral for a loan, also known as collateral assignment. It’s important to consider that a tax penalty may also apply to the extent that there’s gain in your policy. Here’s what doesn’t change if your policy is classified as a MEC: the death benefit will typically be income tax-free. This is based on Internal Revenue Code Section 101(a). Of course, the death benefit will be reduced by any withdrawals or loans, plus unpaid interest. I strongly encourage you to ask your tax advisor for guidance about this. |
| We all know that market performance isn’t predictable. The same for income tax laws. Life insurance can help bring some flexibility to your overall retirement strategy. | The tax code is always evolving, especially with new administrations or changes to the economy. We know what tax brackets are today, but we don’t know what they’ll be when we retire. To deal with this uncertainty you should diversify the tax treatment of your retirement income. Life insurance has the potential to provide you with supplemental income tax-free money in retirement. |
| When you need life insurance coverage and additional, tax-free income in retirement, I have a strategy that can help you to enhance the policy’s cash value accumulation potential. | Here’s how it works. Once we determine how much coverage you need, we can figure out how much the maximum premium you can pay for that amount will be.2 Our goal is to prevent the policy from becoming a MEC. We talked about that earlier. Basically, the tax treatment of your life insurance will be less favorable if you overfund it. Would you like me to go over MECs again? By paying the highest allowable premium payments, instead of the minimum payment amount to keep your coverage in force, you have the potential to more quickly accumulate cash value. In retirement, you can take policy loans and withdrawals from the cash value for tax-free supplemental income. |
| Let’s talk more about life insurance as part of your overall legacy and retirement strategy. | Let’s start with touring some personalized illustrations that I’ve already prepared just for you. |
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Present the Value of Life Insurance in Retirement
This brochure can easily guide your client conversation on the benefits of life insurance in retirement.
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Actions Explore More Retirement Challenges
Add More Life to help solve some of these challenges without causing others.
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Actions If you’re already appointed with Prudential, visit PruXpress to explore more about how life insurance can help clients meet their protection needs and plan for retirement.
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- 1 Outstanding loans and withdrawals will reduce policy cash values and the death benefit and may have tax consequences.
- 2 Distributions from Modified Endowment Contracts (MECs), such as loans, withdrawals, and collateral assignments, are taxed less favorably than distributions from policies that are not MECs to the extent there is gain in the policy. For distributions from a MEC prior to age 59½, a federal income tax penalty may apply to the extent there is gain in the policy. However, death benefits are still generally received income tax-free pursuant to IRC §101(a). The death benefit will be reduced by any withdrawals or loans (plus unpaid interest). Clients should consult a tax advisor.
Prudential Financial and its financial professionals do not give legal or tax advice. Clients should consult their own advisors.
Created Exclusively for Use by Financial Professionals. Not for Consumer Use.
For Compliance Use Only: 1012538-00002-00
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Actions Advisors - Life Insurance
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