Death benefit is income-tax-free

The death benefit of your permanent life insurance policy is passed on to your beneficiaries free from federal income tax.

Premium withdrawals may be tax-free

You may generally take income-tax-free withdrawals under a life insurance policy, which is not a modified endowment contract (MEC), up to your basis (the amount you’ve paid in premiums) of the contract. Special rules apply to modified endowment contracts and to certain withdrawals taken during the policy’s first 15 years.

Withdrawals and loans reduce the policy’s cash value and death benefit, and increase the chance that the policy may lapse. Withdrawals made from a life insurance policy during the surrender charge period may incur surrender charges. Withdrawals will be taxed at the recipient’s current tax rate.

Transfers are tax-free

Transfers among the underlying investment options of a variable life or variable universal life insurance policy are not subject to current income or capital gains taxes.

Withdraw early with no penalty

You can take loans or withdrawals from a life insurance policy prior to age 59½ without the 10% early withdrawal penalty (as long as the policy is not a MEC) that may apply to IRAs, 401(k)s, and other tax-deferred retirement plans or annuities.

Accumulation is tax-deferred

Any earnings accumulated in your insurance policy’s cash value grow free from taxes until you withdraw them. Please note that in a variable life insurance policy, cash value growth is not guaranteed.

The Importance of Tax Deferral

Tax-deferred growth can help your money grow faster than a taxable investment earning a similar return. You pay no taxes on life insurance earnings until they are withdrawn. This means all your money keeps working for you without being reduced by annual taxation and only your earnings are taxed when you actually need your money.

The ability to delay taxes can provide a great advantage over a traditional taxable investment. Even when you consider the taxes that must be paid at withdrawal, the tax-deferred investment can still provide a considerable advantage.

To truly understand the benefits of tax deferral, let’s look at these hypothetical $100,000 investments, and assume an 8% annual growth rate after 10, 15 and 20 years with a 25% federal tax rate on withdrawals.

The values derived from this chart should not be used to project future incomes.

The 8% rate of return is hypothetical and should not be viewed as indicative of the performance of any specific investment product. The 25% tax rate is a hypothetical rate and may or may not reflect your actual tax rate. Your income tax rates over the tax-deferral period may differ from your tax rate when you take withdrawals from your life insurance policy. Certain capital gains or qualifying dividends on certain other taxable investments may, depending on various other factors, including your holding period, be eligible to be taxed at a lower capital gains rate. Lower maximum tax rates (currently 15%, depending on your tax bracket) on long-term capital gains and qualified dividends would make the investment return for the taxable investment more favorable, and thus would reduce the difference in performance between the accounts shown. State and local income taxes should also be considered. This illustration does not reflect the impact of inflation, deductions for any commissions, fees or expenses, which would reduce the investment performance shown.

Please be advised that this page is not intended as legal or tax advice. Accordingly, any tax information provided in this page is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor.

Life insurance is issued by AXA Equitable Life Insurance Company (AXA Equitable) and by various unaffiliated carriers through AXA Network, LLC and its subsidiaries. Co-distributed by AXA Distributors, LLC and AXA Advisors, LLC, members FINRA, SIPC. AXA Equitable, AXA Network, AXA Distributors and AXA Advisors are affiliated companies. All guarantees are based on the claims-paying ability of AXA Equitable. The guarantees do not apply to the investment portfolios.

AXA Financial, Inc. and its subsidiaries do not provide tax or legal advice. This material is provided for informational purposes only. Please consult your tax and/or legal advisors regarding your particular circumstances.

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