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Five tax advantages of life insurance

(BPT) - With another tax season behind us, it’s a good time to consider something that can offer a long-term tax benefit to you and your family: life insurance.

If you are fortunate enough to receive some money from a refund this year, rather than buying that big flat screen TV, consider a purchase that can make a real difference over the long-term.

Most people think about life insurance as a way to supplement income or pay for final expenses. However, in addition to death benefit protection, a life insurance policy can offer several tax advantages:

* In most cases, the policy’s beneficiaries do not have to pay federal or state income tax on the death benefit. In addition, there are ways to structure ownership of the policy so the death benefit is not subject to estate taxes.

* Loans taken out against an insurance policy’s cash value are typically not taxable, as long as the policy doesn’t lapse or is surrendered before the death of the insured.

* The policy owner can exchange one life insurance policy for another without incurring any current tax liability. Later, if the owner no longer needs life insurance coverage, he or she can exchange it for an annuity or long-term-care contract and still defer tax on any gain. Remember, unpaid loans and withdrawals cause a reduction in cash values and death benefits, may reduce the duration of the guarantee against lapse, and may have tax consequences.

* Policy values grow tax deferred as long as funds remain in the policy. For policies that permit withdrawals, the withdrawals are generally available - first as non-tax return of investments, then as taxable gain.

* Many life insurance policies provide for an “accelerated death benefit,” where payments are made to the owner because the insured is terminally or chronically ill. Such benefits are generally set up so that they are income tax-free.

“While the death benefit protection and tax-planning benefits of a life insurance policy may not have saved you money on your taxes this year, a life insurance policy can offer the potential for significant income and estate tax savings in the future,” says Gail VanDalen, chief marketing officer, Prudential Individual Life Insurance.

To learn more about life insurance, go to www.prudential.com/lifeinsurance.

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