Long Term Care Insurance
LTC Insurance can offer some tax benefits
By Marshall Loeb
 NEW YORK - For many people, the first thought that comes to mind when they think of insurance is costly premiums. But as April 15 approaches, remember that some insurance products
come with tax advantages that can save you money. Consider these five insurance tax reminders by the non-profit Life and Health Insurance Foundation for Education (LIFE). Some of the
benefits include using various types of insurance to pay your estate taxes, helping you accumulate money on a tax-free or tax-deferred basis and even lowering your taxable income.
• Life insurance death-benefit proceeds are generally income-tax-free. As long as your beneficiaries are specifically named, they won't have to pay
income taxes on the proceeds they receive from your life insurance policy.
• Sixty-five percent of 65-year-olds will require long-term care services at
some point in their lives. For the many who will require services for several years or more, the cost can be astronomical, so it often makes sense to
consider long-term-care insurance. Depending on your age, adjusted gross income and other medical expenditures, the premiums you pay may be tax
deductible on your personal income tax. If you are self-employed, there are even greater tax advantages by paying your insurance premiums through your business.
• The annual gains you earn from traditional investments and savings vehicles must be claimed as income on your tax return. However, the gain in cash
value that builds up over time in permanent life insurance policies can be tax-free or tax-deferred, depending on how you withdraw the money later on.
What's more, these gains are not subject to the alternative minimum tax.
• An annuity can provide you with a guaranteed lifetime income and thereby
deliver some much-needed stability and predictability to your retirement security plan. Moreover, with an annuity all gains are tax-deferred until you
retire - at which point you may be in a lower tax bracket than you are currently. The portion of the funds paid out that are made up of previously taxed
principal will be received tax-free. If you've hit maximum limits in other tax-deferred retirement savings accounts, an annuity can be an attractive option.
• An irrevocable life insurance trust (ILIT) can help minimize estate taxes. While life insurance proceeds at death are almost always free from income tax
, they may be subject to estate taxes if they bring your assets over the exemption limit set forth by the IRS. An ILIT immediately removes new life
insurance policy proceeds from one's taxable estate by setting up an independent legal entity that is the owner and beneficiary of the policy. The
ownership of an existing policy may also be changed to an ILIT, but the death benefits won't be tax-free until three years have passed from the date the ownership was transferred to the ILIT.
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