Customized Tax-Favored Plans (TFRA)
“There are two sections of the IRS code we use to help clients navigate when evaluating protection-based financial strategies. Section 7702 applies to life insurance policies and governs how they accumulate tax-deferred* cash value and offer tax-free death benefits. Section 72, on the other hand, applies to annuities and explains how distributions are taxed and when penalties may apply.
While we offer products in both categories, they serve different purposes. Life insurance provides protection and optional access to cash value, while annuities offer a way to defer taxes* and access structured payments in the future — especially during work-optional years.
* Always consult a qualified tax advisor or attorney for personalized advice regarding the tax implications of any insurance strategy.
Life Insurance and IRC Section 7702: Accessing Cash Value Responsibly
Under Internal Revenue Code Section 7702, a life insurance policy must meet certain criteria to be treated as life insurance for tax purposes. These rules govern how premiums, death benefits, and cash values interact within the policy. When structured properly, these policies not only provide a death benefit, but may also accumulate cash value on a tax-deferred* basis.
Our agents, working within these guidelines, can help you choose policies that meet your long-term protection and liquidity goals. Depending on how the policy is designed, it may include features that allow the policyholder to:
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Withdraw available cash value on a tax-favored* basis (subject to policy limits and timing),
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Or borrow against the cash value through policy loans, generally without triggering immediate taxation* (provided the policy stays in force).
These options may offer supplemental access to funds later in life, such as during work-optional phase or for emergencies. However, it’s important to note:
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These features are not income-producing investments.
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Accessing the cash value through loans or withdrawals reduces the policy’s death benefit and cash value.
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Policies must remain compliant with 7702 guidelines to retain their tax advantages.
Annuities and IRC Section 72:
In some cases, our agents may also offer annuities — which are contracts that can provide income streams in work-optional seasons — but these are separate from life insurance policies and have their own set of IRS Rule 72 and tax considerations*.
Under Section 72 of the Internal Revenue Code, annuity contracts issued by licensed insurance companies allow funds to grow tax-deferred*. When structured properly, distributions may include a return of principal and earnings, with the earnings portion subject to ordinary income tax*. If funds are accessed before age 59½, an additional IRS penalty may apply.
Final Note
While life insurance and annuities may offer strategic benefits under the tax code, they are insurance products, not investment vehicles. Agents at One Stop Financial Group are licensed professionals who help clients select and structure insurance policies in a way that aligns with their financial goals, while remaining within regulatory boundaries.