By Chantal Marr, LSM Insurance
New tax legislation is set to take effect on January 1, 2017 that will change the way policyholders are taxed for deposits toward certain life insurance policies.
Policies issued after 2016, also know known as G3 tax generation policies, will offer less exempt room over the long term.
This new legislation will mostly affect affluent policyholders as the tax deferral features of these life insurance products typically benefit people in the higher tax brackets.
One major change is that surrender charges will no longer impact the allowable tax-deferral room in universal life insurance policies. Previously, if a policy had high surrender charges it would allow for high deposits eligible for tax deferral. Within the new framework, surrender charges will no longer impact how much tax exempt room is allowed.
Level Cost of Insurance (LCOI) Universal Life Insurance policies will be hit the hardest by the new legislation. Under the new rules, the amount of deposits allowed for tax-deferral purposes will decrease drastically.
Another type of permanent life insurance product known as Participating Whole Life, has an investment element but does not need to be managed by advisors.
Industry veteran and life insurance expert, Jim Ruta (pictured on the right), explains in his recent column in the Investment & Insurance Journal why it’s a good investment to purchase Participating Whole Life insurance before the new legislation takes effect in 2017.
Here is a summary covering some of the points he made: Continue Reading…