Striving for More Tax-Free Income with Life Insurance

9 November 6:20 am by

What many people do not realize when they first buy tax-advantaged income policies like Whole Life and Universal Life insurance is that policies are not all equal. In fact, most life insurance policies are sold to consumers with very little information about the state of the industry or the tactics they should use to get the most out of their benefits. The fact is, life insurance income can be a great source of tax-free cash later in life if it is needed, and if it is not, the tax-free cash death benefits, when structured properly, can be passed on to your beneficiaries.

Basic Life Insurance Sales Scenario

Let’s say you talk to an insurance agent when you are 40 years old. The agent explains to you how Whole Life insurance works, and then he points out that there is a 5.56 percent dividend on the savings portion of the policy. This sounds pretty good, since bonds are currently performing around four percent and savings accounts through traditional banks are giving negligible rates.

The agent is likely to point out how common whole life investment is at your age, too. There are likely to be some appeals to the fact that your peer group is likely to be heavily involved with these kinds of decisions, so people in your area have likely signed up for the same policy.

Analysis of the Situation

This could seem like a great deal on the surface if you don’t have a lot of experience in the field. The fact is, though, that an informed customer is likely to take a different approach. Instead of accepting that a rate above five percent is a good thing, that customer would take a look at the performance of various insurance companies, to see what is out there and what other plans pay on their dividends. That customer would also look into other companies to see if there are plans that have more stable records of dividend payment or that are likely to be paying higher dividends. In the end, that customer might have come out with an increased death benefit or higher projected tax-free income compared to the policy initially offered.

How TMH & M Financial Group Can Help

For decades, mortality rating tables have been used to price life insurance policies. This mortality table is used by every major insurance carrier in the country and while it’s improved over the years, it incorporates the life expectancy data for the unhealthy along with the healthy; meaning the healthy are paying more than they should because the unhealthy weigh the table down. While the mortality table has generally improved, it does not compare to the one used by the M Financial Group. As a member of the M Financial Group, we at TMH have access to our own mortality table with many of the major insurance carriers. This table helps provide some of the lowest cost life insurance in the industry. What does this mean to someone that already owns a policy or looking at a new cash value policy? Compare their offer to the market. If you’ve owned any Universal Life or Whole policy for at least 5 years, you likely can do better. With a simple review, we can help you see the potential cash value you can achieve by accessing the mortality table of an M Financial Group policy with TMH.

What We Do

If you are looking to maximize your tax-free income, we can help in a variety of ways.

  • Using an insurance review, we can take a look at the particulars of your policy and compare to more recent, low cost and efficient policies.
  • We can discover your true yield after taxes, fees, and other costs that eat into your dividend rate.
  • We can show you policies that might yield significantly higher tax-free income.

Case Study

5 years ago, a 40-year old purchased a whole life insurance policy from Northwestern Mutual. In addition to a death benefit, he was told the premiums paid into the policy would be invested and all gains accessible in the form of tax-free income. The insurance policy was designed as follows:

  • $45,000 premium schedule for 17 years with an initial death benefit of $2,832,075 that would potentially grow to $4,343,052 at age 65.
  • The policy would potentially provide a tax-free income stream of $149K starting at age 65 for 20 years.

What the client didn’t realize was there was possibly a better option available to him. Traditional retail agents cannot access the M Financial Group product, it’s pricing and coverage advantages. M Financial Group was founded on the principle that the affluent market should not be forced to purchase high cost, retail product. Due to the high-end market M Financial Group underwrites and its relationships with the top end insurance carriers, it has built its own mortality rating table to give a far superior product to its clients.

When TMH was asked to review the existing policy, it didn’t take long to determine the following was available:

  • Assuming the same premium schedule and using a lower cost of insurance policy, the potential tax-free income stream would be $200K starting at age 65 for 20 years; a 34% increase.
  • The initial death benefit would start at $3,022,276 and potentially grow to $5,125,107 at age 65.


In some cases, your existing policy might be the best one for you. In most of those cases, though, it’s still possible to achieve better tax-free income by exchanging to an M Financial Group product through TMH & M. You won’t know until you try, and there’s almost no minimum amount of cash value your policy needs to have. Remember, your insurance company is not objective about the information they provide. Get advice from someone who is.

File # 1509-2018

Add Disclosures:

  1. This material is intended for informational purposes only and should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.
  2. Experiences of clients with life insurance products will depend on their unique facts and circumstances and we cannot guarantee the same results for all clients.
  3. Tax-free income streams can be accessed through policy loans and partial withdrawals which will decrease the death benefit and cash value and may be subject to policy limitations, income tax, and includes the potential for policy lapse.”