What is a 770 account?
A 770 account is a Permanent Life Insurance Policy used more as an "investment vehicle" than life insurance. I have to be careful how I phrase that because there are rules against implying or calling life insurance an investment. In fact, that is why life insurance agents must call contributions a premium and not an investment.
It derives its name from Section 7702 of the tax code. People use it not so much for the death benefit, but for the cash value growing tax deferred. You must be careful, however, not to "overfund" the policy, thus losing its tax advantage. I will say, you should normally only do this if you need life insurance anyway and can put a "relatively" nice sum, again without overfunding. Many times, people will normally determine how much they can put into the cash value and back into enough death benefit (life insurance) without overfunding.
I am not a big fan of permanent life insurance, and usually recommend cheap term and investing the difference. But sometimes, there are uses for permanent life insurance. If you have a high liability like a doctor and have already maxed out your retirement plans, it may be suitable, especially if you need the life insurance. Or it could be suitable if you need life insurance anyway and have extra cash available to build up the cash value. Later, you can either take a loan against the cash value or you can take out principal amounts tax free, leaving the growth inside the policy. Therefore, you can have better control of taxes later on in life. I tried to keep this in very simple language leaving out all of the insurance jargon, but the philosophy is accurate.
This can be a tricky strategy and you must be careful of unscrupulous life insurance agents trying to generate big commissions. If you plan to investigate further, seek out someone you trust knowledgeable in insurance.
Hope this helps, Dan Stewart CFA®
A 770 Account deals with cash value life insurance. Can anyone open one? Yes, if you are insurable. Are they worth it?
Here is a little story from Fox News http://www.foxbusiness.com/features/2014/06/26/tax-story-behind-770-accounts.html
I am not a fan of using life insurance as an investment account. They cause poor returns and too many visits to the piggy bank and your "tax-free" income is then declared taxable.