Changes Coming for Life Insurance and Annuities


We hope you had a nice summer and are welcoming the return to a comfortable routine that September tends to bring. In this edition of the Martens Report we want to bring to your attention some new changes to the income tax rules for life insurance and annuities that will come into effect January 1, 2017. For Life Insurance: Life Insurance has always played a very important role in one’s overall estate plan. Permanent life insurance policies, such as Universal Life or Whole Life provide the ability to:

  • shelter money within a policy,

  • grow the money tax efficiently, and

  • bypass all estate costs.

Unfortunately, the income tax benefits of certain insurance strategies will be diminished starting in January 2017. The same advantages listed above will still be available, however, they will be less advantageous. Also, it is likely that the cost of permanent insurance is going to increase. On a positive note, all policies implemented before December 31, 2016 will be grandfathered and the tax benefits for policies previously purchased will remain unchanged and adhere to the old rules too. Due to the changes coming soon, we strongly encourage you to consider looking at your life insurance needs right now, while there is still time to take advantage of the current rules. For Annuities: Purchasing a life annuity with non-registered money has always had many benefits, including guaranteed income for life which is unaffected by the market or interest rate changes, and preferential tax treatment when an annuity is purchased with non-registered money. The upcoming tax changes will increase the taxable portion of each payment and reduce the after-tax income you receive. Much like the rule changes with life insurance, annuities purchased on or after January 1, 2017 will use the new calculations for the taxable portion on each payment. Be aware that annuities purchased before December 31, 2016 will still use the old calculations, even if the payment begins after January 1st. This grandfathering provision is a good reason to ensure you purchase an annuity before January 1, 2017, if this is something you are considering. In closing, if you are looking at life insurance, or have been thinking about purchasing an annuity, now is the time to act. We encourage you to speak with us and review your insurance options to ensure everything is in place in time, before the end of this year. Thank you, Andrew and Peter

#LifeInsurance #retirementplanning

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