Understanding Section 7702 Plans

Have you considered taking advantage of the 7702 plan? If so, there is nothing to worry about since it will always come to your aid at some point in life. That’s not to say you should view it as a retirement plan, as advertised by most insurance agents since it isn’t. ‘Section 7702 plan’ is just a fancy term that some insurance salesmen use for cash value life insurance policy.

To help answer some of the questions in mind, section 7702 of the Internal Revenue Code (IRC) clearly lays out the tax rules for ‘cash value’ life insurance policies. Cash-value life insurance policies, also called whole life or guaranteed life policies, are in the first-place life insurance policies.

In the event that a policyholder dies, their beneficiary will receive a large payout from the insurance company. Bear in mind all cash value life insurance policies are Section 7702-compliant. What this simply means is that the cash value inside the life insurance policy can grow tax-free.

It doesn’t end with that since account holders are free to ‘borrow’ against the built-up cash value inside the policy. This can be done either to pay the premiums or to fund living expenses. The ‘tax-free loan’ may be used to hoodwink unsuspecting clients into seeing a cash value life insurance policy as the ideal alternative to a retirement account.

So, are 7702 life insurance policies bad? Well, cash-value life insurance policies aren’t necessarily bad products. That’s also not to say they are a great fit for the typical person. Because of thehigh front-loaded fees and commissions, the cash value grows slowly for a couple years.

You should never expect to enjoy tax benefits when leveraging cash value life insurance policies. But the vast majority of people don’t have adequate income to cover all their expenses and max out their real retirement accounts.

In the event that you are already knocking your financial goals out of the park, and still have a strong cash flow, a cash value life insurance policy can be an essential part of estate planning.