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Why is a Section 7702 Plan Important?

Going with the hype surrounding 7702 plans, you might wonder what makes it worth your attention. This is especially the case when looking for an ideal retirement plan. But that’s not to say a 7702 plan is a retirement plan per say as advertised by most insurance agents out there.

Keep in mind you can withdraw the cash value of a 7702 plan tax-free as long as it’s not more than what you’ve put in. With a tax-free death benefit, you can pass on a cash value policy to a beneficiary.

So, why is Section 7702 that important? Well, it plays a vital role in dictating how cash value life insurance policies receive tax-advantaged treatment. In the event that a policy fails to quite line with the IRS Tax Code criteria, then the growth of the cash value within the policy becomes taxable income. Things are no different when it comes to the death benefit of the policy.

But this isn’t often a problem for most policyholders since the vast majority of today’s insurance policies meet the criteria. You might not know this, but Section 7702 was created because many life insurance policyholders were using them as tax-shelters.

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Of course, there are a few challenges to Section 7702 you should know about. After the implementation of the changes made to how life insurance policies get issued, the biggest issue faced was implementing these new rules. This meant insurance providers had to develop new solutions and integrate new types of software.

By far the biggest challenge many business encounter with Section 7702 is that allowable contributions can significantly vary by policy type. Furthermore, the policies can often be limited by certain regulatory requirements.

We can never conclude without mentioning the fact that a cash-value life insurance policy can at times be a much better fit for your personal situation compared to a term life insurance. It is in your best interest that you explore and weigh your current financial position to determine the best path forward. That’s what you need to enjoy the numerous benefits it offers.

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Magazine Herald
Magazine Herald
Madalyn D'Cruz is a social media, Magazine expert and digital marketing strategist who has helped numerous businesses build their online presence. She has a degree in marketing from the University of Florida and is constantly staying up-to-date on the latest social media trends and best practices. Maria also enjoys photography, travel, and spending time with her family.


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