MBK and Associates Inc. have programs that can be customized to your situation, but we like to dedicate energy here on our blog and podcast to talk about some of the things you might not know about life insurance. You may have been pitched on life insurance a few times in your life, usually by that guy that you knew in high school…but not THAT WELL. What we try to do is simply help you better understand what you COULD be doing. We aren’t here to sell anyone anything. Many of the programs we offer provide upside and lower your risk, that is just a fact. If you’d like to chat-please don’t hesitate to reach out or give us a call!
So What is Overfunded Life Insurance?
You probably have learned over the years how beneficial traditional whole life insurance policies can be, typically providing a financial cushion for your loved ones after you die. Did you know that a death benefit isn’t the only thing you can get out of a life insurance policy?
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There are many other ways a policy can help you reach NEW financial goals, even after retirement. Some people may overfund their life insurance policy, for a variety of reasons. Here is a little bit of info on how overfunded life insurance works and who it may work best for..
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Overfunded Life Insurance is, quite simply, when you pay more into a policy than is required. Permanent policies like whole life insurance or universal life insurance have cash value attached, so by overfunding, you contribute more to the cash value. Each year and each month you will need to pay a certain premium to ensure the policy stays in force and your beneficiary will receive your death benefit. However… if you pay more.. the cash value of your policy usually grows as well.
Obviously different policies and different vendors have different rules, and there are limitations. You’ll want to know someone on the inside to help you through this process. If it was easy- everyone would do it. Turn to a team you can trust… like MBK and Associates!
Why Would Someone Overfund Their Life Insurance?
There are many reasons. One is simply if you are planning on accessing your cash value. You can typically draw from your permanent policy’s cash value in the forms of loans or withdrawals, overfunding can potentially increase your available money later on. Loans accrue interest, and loans or withdrawals may generate an income tax liability… So overfunding might be beneficial in this case..
Another primary reason would be managing your taxes. Life insurance policies are unique when it comes to the IRS. You can get in trouble if you aren’t dotting your I’s and crossing your T’s. You typically do not pay income taxes on interest earned within a life insurance policy. The IRS also does not set a yearly limit on how much you can contribute to a policy. The tax features of a life insurance policy can get challenging, but not if you are working with the right people..
The Bottom Line is this..
Overfunded Life Insurance is a great option for SOME PEOPLE. Some- maybe not. Talking to someone you trust, who can provide value and who you enjoy working with is always what’s most important. Many of our customized policies can also provide KEY incentive for organizations like credit unions and community banks to provide executive level benefits to recruit and retain talent. Let’s have a coffee and see what we can do for you!