After-Tax Term Life Insurance

The policy owner actually must earn $714.29 to pay a $500 term premium. If you are in the 30 percent tax bracket, you have to earn $1.43 to spend $1.00 on life insurance.

A nonsmoking policy owner, age 50, who needs $200,000 of insurance, could buy the non-guaranteed term insurance for $500 per year. How much will he have to earn to pay for it? The policy owner will have to allocate earnings to pay both the insurance company and Uncle Sam.

Earnings required netting $500:

           $500/(1 - 30%) = $714.29

Income tax liability:

           ($714.29 X 30%) = $214.29

Earnings minus income tax paid:

Net premium payment = $714.29 - $214.29 = $500.00

The policy owner actually must earn $714.29 to pay a $500 term premium. If you are in the 30 percent tax bracket, you have to earn $1.43 to spend $1.00 on life insurance.