Permanent life insurance can be a great supplemental retirement tool to tap into.  If you set up the policy the correct way and take advantage of the tax-free benefits, you can see real value.

Many people don’t understand permanent life insurance and that includes many of the agents, CPA’s, Attorney’s, talk show hosts (you know who you are) etc.   If you understand how the tool works, I think you will really see the value.    The way to set up the life insurance policy to use it as a supplemental retirement, starts with the funding.  You should try and fund the policy, just under the MEC level.   MEC stands for Modified Endowment Contract and that is when the cash value loses its tax free status.   In other words, when you hit the MEC level you have gone to far.    The idea is to put as much money in the policy as possible and get the tax advantages available under IRS guidelines.

In order to take advantage of the benefits of  a life policy as a tax free supplemental retirement tool, you must know how to access the money.  You should  start by taking out the money as withdrawals up to your cost basis.  Since it is your contributions to the policy, there is no tax up to the cost basis.  When you reach the cost basis, then you shift to taking preferred policy loans.   If you do it this way, you can avoid paying income taxes on the money.  Whatever money you take out as a withdrawal or as a loan, is simply deducted from the face amount (death benefit) of the policy.  The only difference is you can’t put the withdrawal money back into the policy if you want, but you can on a loan.