1. 135 POINTS
    Cody Hughes
    Owner/CEO, Tristate Insurance, Missouri, Oklahoma, Arkansas, Kansas
    Only in certain situations. Let me explain:

    If you purchase a variable life insurance policy, or a permanent policy that builds cash value inside it, you are funding that policy with after tax dollars. Meaning, you have already paid taxes on that money (income tax). The money that continues to build and grow inside of that policy is tax deferred. If you decide to take cash out of that policy, lets say to buy a car, that is going to be considered a withdraw. You will only pay taxes on the amount that exceeds your cost basis ( or the amount you have put in). So it holds true, the longer you have your policy, the greater the cost basis will be.

    Instead of a withdraw from you cash account, their is another option to 'loan' yourself the money. Much like you would from a bank or lender. There are several factors to be mindful of when you make yourself a loan from you policy. For example, if you loan yourself money that is the same amount, or exceeding the amount that is in the policy (cash in the policy), you could be subject to 'income tax', which is higher than capital gains tax.

    There are any moving parts to this question, and is somewhat difficult to give an answer that will blanket everyone.

    But REMEMBER, the death benefit of the variable policy is paid to the beneficiary TAX FREE. Assuming that their are no estate taxes to contend with. As with any life insurance policy, it is best to set down and speak with a professional on the matter. It's better to plan and know what to expect than to be surprised by a large tax bill!
    Answered on September 28, 2014
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