Why do I need death benefit and how does it help my policy?
And, although growing this death benefit is not our primary goal inside an Infinite Banking policy, it does provide some useful benefits to the policy.
There are three important things to understand when it comes to Infinite Banking and death benefit.
#1 – Death benefit passes money to the beneficiary
The most significant aspect of death benefit is that it is passed income tax-free to the beneficiary on the policy. This is one of the most significant benefits that comes from using a cash value whole life insurance policy.
There is really no other investment tool that offers the same benefit to our loved ones that Infinite Banking does. Death benefit, in almost every case, increases the growth and earnings on our life insurance policy significantly.
Although we may not want to think about it, we all are going to die someday. This means the death benefit will, at some point, transfer to our beneficiaries, and whole life insurance is one of the most powerful assets to own when we die.
#2 – Death benefits keeps the policy tax-free
While we are alive, whole life insurance grows without any taxation. However, if we decide to cancel the life insurance policy and take the money out completely, we will owe taxes on the earnings.
So, can we avoid this. Yes! We do this by utilizing the death benefit option.
As long as we keep our life insurance policy in-force, meaning it has a positive balance inside of the policy, then our money will transfer income tax-free when we die.
This is how we keep a life insurance policy tax-free indefinitely. It grows tax-free while we are alive, and then, at death, it transfers to our heirs income tax-free.
Death benefit is what we rely on to keep our whole life insurance policy free and clear of any taxation on principle and growth.
#3 – Why don’t I get my cash value and my death benefit?
The most commonly asked question about death benefit inside of a whole life insurance policy is, why do I not get the cash value and the death benefit when I die?
This is also one tactic that those who are against the Infinite Banking Concept will use to try to confuse those looking into Infinite Banking as an investment tool.
The reality is this, cash value is already included in the death benefit.
In fact, cash value is death benefit.
The very definition of cash value is, “the amount of death benefit that you may take out immediately upon surrender and cancellation of the life insurance policy.”
So cash value is nothing more than the liquid portion of your death benefit. This way, the policy holder can cancel the policy at anytime and walk away with the cash value.
And death benefit is always higher than cash value in an active life insurance policy.
By structuring and planning ahead in our life insurance policy, we can ensure that our heirs get a significant amount of money, tax-free, on the money we have invested. Death benefit gives us the ability to keep the life insurance policy tax-free until the time our family needs it most.