Tax deferred money growth is not to be mistaken for tax free money! Every one of us must pay taxes at one point, but the later we have pay them, the faster our funds grow. It all goes back to collecting interest on interest. If you are credited with interest or dividends, and you pay, let’s say, 20% in income tax from this income, then you just added 20% less money to be invested. Simple common sense.
Utilize Tax Deferred Growth Through Paid up Additions
There are several advantages in growing your funds through the principle of Paid-Up Additions in a whole life policy. The first advantage is that any money you put into a life policy remains there. Any gains, if kept in the policy, get the opportunity to grow without showing up on your tax filings. Yes, premiums are paid with after tax dollars. They become your investment and any money that you may need, is available to you also tax free. Even the yields. Reason is that life insurance companies in general will let you take this money from the policy though a loan.
This is the second advantage. Loans do not count as income, therefore even your dividends in the loan are without income tax burden. All loans are mandated to come with interest. So, you take out a loan with a few points of interest. But, since you only borrowed your own money, the insurance company will consider your policy to be paid in full, disregarding the loan when paying out dividends. This means that you are collecting dividends even on money you took out as a loan! No other tax deferred fund will do that for you!