Why More People May Buy Life Insurance in 2021

Family together around computer
Photo by Juergen Faelchle / Shutterstock.com

A federal law passed at the end of 2020 has made permanent life insurance more attractive to some people.

The law essentially tweaks the tax code to allow owners of permanent policies to put more money into the savings portion of their policy.

As we have explained previously, permanent policies, also known as whole life policies, are a combination insurance-and-savings vehicle. Part of your monthly premiums pay for a death benefit, and another part goes into an internal savings account.

The Wall Street Journal describes the key law change — which went into effect on Jan. 1 for new policy sales — as follows:

“The law lowers a minimum interest rate used to determine whether combination savings and death-benefit policies known as permanent life insurance are too much like investments to qualify for tax advantages granted to insurance. The interest-rate floor was put in place in 1984 to weed out policies that were mostly investment vehicles with a thin layer of insurance.”

The WSJ adds that the change will make it more attractive for insurers to sell permanent life policies. In recent years, interest rates have fallen so low that the old standard minimum interest rate — which was established in the 1980s — was actually higher than the yield on long-term government-bond yields.

That reality had forced many insurers to consider ending sales of permanent life insurance policies. Life insurance companies typically make profits by investing customers’ insurance premium money in bonds until a claim is made on the policy.

Permanent life insurance allows policyholders to defer paying taxes on any money they make on investment and savings income within the policy. In addition, upon the policyholder’s death, beneficiaries usually do not have to pay taxes on the death benefit they receive.

That combination of perks makes whole life insurance more attractive to some people than term life insurance.

Now, the WSJ notes, that the recent tax-code change may make permanent life policies especially appealing to the wealthy:

“This change applies to buyers of all income levels, though wealthier people would typically be better able to afford extra payments into a policy.”

Additionally, President-elect Joseph R. Biden Jr. has said he intends to raise taxes on the wealthiest Americans, so those in higher income tax brackets may look to life insurance as a way to reduce taxes.

Is permanent life insurance right for you? Before putting down money on a life insurance policy, read “Which Is Better: Term or Whole Life Insurance?

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
17 Home Upgrades That Rarely Help Close a Sale
17 Home Upgrades That Rarely Help Close a Sale

Real estate agents give these renovations low marks when it comes to helping sell homes.

7 Tips for Building an Emergency Food Supply
7 Tips for Building an Emergency Food Supply

A pandemic or natural disaster could leave you reliant on your existing emergency food supply. Is your pantry well-prepared for emergencies? Knowing what to stock up on for emergencies can be a difficult task and we’re here to help.

12 Products to Keep Your Car Clean and Organized
12 Products to Keep Your Car Clean and Organized

These items will help put your vehicular mess to rest — and each is available for less than $20 on Amazon.

5 Ways to Put an End to Junk Mail
5 Ways to Put an End to Junk Mail

Here’s how to keep unwanted mail from clogging your mailbox and trash can.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

Is This Treatable Condition Causing Your High Blood Pressure?
Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have all of these documents that are crucial to their golden years — especially during a pandemic.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

21 Items to Cut From Your Budget That You Won’t Even Miss
21 Items to Cut From Your Budget That You Won’t Even Miss

Start off the new year by implementing these small-but-smart savings strategies. They’ll soon add up.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

11 Huge Retirement Costs That Are Often Overlooked
11 Huge Retirement Costs That Are Often Overlooked

Does your retirement budget account for all of these costs?

7 Tricks to Cleaning Your Bathroom Faster
7 Tricks to Cleaning Your Bathroom Faster

These tips can get your bathroom sparkling with little time and no elbow grease.

7 Bank Accounts With Extra Perks for Seniors
7 Bank Accounts With Extra Perks for Seniors

These accounts offer exclusive discounts and other perks — including interest — to older customers.

10 Times You’re Right to Be a Cheapskate
10 Times You’re Right to Be a Cheapskate

Clever shoppers can save money without sacrificing quality. Here is how to do it.

20 Amazon Purchases We Loved in 2020
20 Amazon Purchases We Loved in 2020

These practical products made everyday life a little easier last year — and will do so in the new year, too.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.