Do changes in US tax law make permanent life insurance attractive?

January 7, 2013 3:39 PM

Do the new US investment taxes and increasing rates on dividends and capital gains make permanent life insurance attractive for high income individuals?

The classic response to the question: "Should I buy whole life insurance?" has been no. The theory is that perm insurance is expensive and for less money you can by term, invest the rest and come out ahead.

That said, does this advice still apply given the changes to the current tax law, especially for those who have fully funded their tax deferred savings vehicles (eg. 401k/403b, IRAs, etc). The though is using WL/UL/VUL as another means to allow income to grow tax deferred.

posted by cheez-it to Work & Money (1 answer total)

Although I am far from an expert, I don't see how an increase in the tax rate for long-term capital gains and qualified dividends from 15% to 20% (for those earning over $400/$450K) significantly changes anything in the analysis.

The one place where whole life or its permutations make sense is the person who wants the security of "permanent" insurance. Term insurance protects you for the term specified, and then expires. WL etc. will continue in effect once it is paid up, and the death benefit can be regarded as the payout. I would not consider it for anyone who may need the cash value during his or her lifetime.
posted by megatherium at 6:53 PM on January 7, 2013