We're not saying that life insurance is the greatest thing since sliced bread. But this financial planning concept—which seemingly has been around forever, perhaps since before sliced bread—does offer significant tax benefits. In fact, permanent life insurance is a three-way tax winner.

For simplicity, this article will focus on whole life, one of several kinds of life insurance. Typically, a whole life policy remains in force as long as you continue to pay the premiums. Meanwhile, the policy builds a "cash value" you can borrow against. You also could surrender the policy and receive its "surrender value." If you keep paying premiums, or if the policy is paid up, your beneficiaries will receive a death benefit when you die. That money, which usually is available a short time after the death, can help sustain a family during a time of financial need.

What about federal income taxes? Although Congress has chipped away at many traditional tax shelters, the main benefits of life insurance remain intact. Generally, it provides at least three significant tax breaks: