One unique feature of certain life insurance policies is the ability to borrow against the policy’s cash value. These are known as policy loans. Under current tax rules, loans taken from life insurance policies are generally not treated as taxable income, as long as the policy remains in force. Example Suppose a policy has accumulated $200,000 in cash value. The policy owner may be able to borrow $50,000 against that value. That loan could potentially be used for: Supplementa

Life insurance receives special tax advantages under IRS law. However, the IRS created rules to ensure these policies are not used strictly as short-term tax shelters. One of those rules is called the Modified Endowment Contract (MEC) rule. This rule comes from IRS Section 7702A. A policy becomes a MEC if it is funded too quickly relative to the death benefit. Why this matters If a policy becomes a MEC: Withdrawals may become taxable Loans may be taxed differently Penalties m

Life insurance is often thought of only as protection. But certain types of policies also build something called cash value. Cash value is a portion of the policy that grows over time. Unlike term insurance, which provides coverage for a specific period, permanent life insurance policies may accumulate cash value throughout the life of the policy. Example If someone contributes $10,000 per year into a policy designed to accumulate cash value, a portion may go toward insurance