• Life insurance offers a number of tax benefits.life"s a gamble image by Pix by Marti from Fotolia.com
  
  In addition to helping to provide for your family's financial needs in the event of your death, life insurance can also offer benefits while you're alive. Life insurance can provide a variety of tax benefits that may not be available in other forms of financial products. It is important to consult with your tax adviser to see how these benefits may apply to your own situation.
  
  

Tax-Free Death Benefit

• When you die, your beneficiaries receive the policy's death benefit on a tax-free basis. This means that if the face value of your policy is $100,000, your beneficiaries will receive $100,000 to use as they see fit, such as to pay off the mortgage, repay car loans or fund a college education.
  
  

Tax-Free Loans

• If your life insurance policy is a permanent plan that builds cash value, you can access the accumulated cash in the form of a low-interest loan. Any amount that you take as a loan is done so without being taxed, and you also do not pay taxes on the interest.
  
  

Tax-Deferred Interest

• Policies such as universal life contain a cash fund that earns interest on a tax-deferred basis, meaning that you pay no taxes on the accumulated interest until you withdraw the money. This differs from stocks or regular bank savings accounts where your pay taxes on the gains or interest each year. If you wait until you retire to withdraw money from the universal life plan, you may be in a lower tax bracket which reduces your tax burden.
  
  

No Tax on Exchanges

• Certain types of exchanges involving life insurance are typically not taxable. For example, if you wish to surrender your policy and use the cash value to roll into a tax-deferred annuity, the cash amount is not considered taxable income. However, if you surrender the policy and use the money to take a vacation or buy a car, the amount of cash value in excess of premiums paid is considered taxable income.
  
  

Tax-Free Dividends

• Some types of permanent life insurance earn dividends. Because the dividends are considered a return of part of the premium, they are not viewed as taxable income. Dividends can be received in cash, left in the policy to accumulate over time, or used to purchase additional insurance.