Parents or grandparents - can purchase life insurance at a minimal cost for their newborns, children, and grandchildren because of their young ages. By continuing to pay the same, level premium, over their lifetime, the cash accumulation can build and compound. Life insurance, purchased for young children or grandchildren, may provide lifetime benefits that few of us may realize. As your 1-year-old approaches college age, he or she may take a loan against the policy to help pay those education costs or to make the down payment on a first home. Loans from life insurance policies are tax-free. Later, as premium payments are assumed and continued by the young adult, benefits will continue to grow and compound, generating a significant tax-free component to their portfolio. This extraordinary part of their portfolio may also provide lifetime income, health, and long-term care benefits.
Banks, corporations, and partnerships - have long known of the wisdom and rewards of life insurance. Sometimes, chief executives purchase life insurance for their board members, executives, and other key employees to build a pension and a death benefit. Essentially, the employee will receive a year-end bonus from their employer, designated as an annual premium for their life insurance policy; taxes are paid by the recipient, and then the balance is deposited annually into their policy. This strategy, if planned, written, and executed properly, could help alleviate market risk from this portion of their portfolio, providing a resource of cash accumulation, pension benefits, lifetime tax-free income, health and long-term care benefits, and a death benefit for their beneficiaries.These key employees, board members or partners are the owners of their life policies; therefore, if they leave their place of employment, their policies will remain unaffected and all benefits will continue, without interruption.
Partnerships often choose to use life insurance as a buy-out strategy. The partnership will purchase life insurance for each partner, then, if one partner chooses to buy-out another partner, the tax-free cash accumulation will become a vital and integral part of the transaction. Also, if one partner passes away, the life insurance proceeds are paid to the estate of the departed partner, thereby buying out their holdings in the partnership.
Often, entrepreneurs consider their life insurance policies to be their “family bank.” For example, Babe Ruth borrowed against his life insurance during the Great Depression; Walt Disney borrowed against two of his life policies and sold his second house to develop his dream of Disneyland, to the point where investors could visualize the plan he had in mind. Also, the hallmark campaign of McDonald’s and the Ronald McDonald House were funded by the cash accumulation of Ray Krock’s life insurance policies. The enormity of the benefits of life insurance is unsurpassed.
Affluent clients - may not realize how life insurance might impact the transfer of their estate from one generation to the next. The costs of taxes and maintenance on large estates, passed through the generations, can be daunting and can become heavy burdens for their successors. Equally as formidable are large IRAs, 401(k)s, or retirement accounts of any kind, as they can leave considerable tax burdens to their beneficiaries.
Proceeds from life insurance policies bypass probate and pass directly to the designated beneficiaries, in the very same manner that assets of a living trust bypass probate and pass directly to the beneficiaries.
Fortunately, your questions and concerns, restrictions, limitations, and bequests may well be resolved by a fiduciary with credentials in estate planning, investment advisory and life insurance and annuities. Your financial advisor will listen intently and pose questions you may or may not have considered to stir your conception of the depth and breadth of possibilities to optimize your estate during your lifetime and for your beneficiaries.
In summary, my advice is to search for an experienced financial professional licensed to offer insurance and investment advice with the legal support of an estate planning law firm. It may appear to be an exhausting task, but don’t give up or settle for less. You’ve worked hard through the years to build your estate, and now it’s time to put a moat around it to ensure its longevity for your lifetime and legacy.
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