You may not think that if you’re wealthy, you might want to consider purchasing life insurance. If you have no debts to settle and can leave loved ones with enough money to maintain a similar lifestyle when you’re gone through your estate, is life insurance worth it?
This may come as a surprise… but life insurance can be a very helpful tool for people who are wealthy! Generally, when you die, the majority of your assets may be left within your estate. All of the assets included in your estate may then be subject to taxes by the government.
Life insurance death benefits, on the other hand, may be treated as tax-free. Under tax regulations, life insurance death benefits are generally treated as “gifts” to beneficiaries and may not have to adhere to the same taxation guidelines as estates. Both term and permanent life insurance policies can contain tax advantages for the both the owners of the policies and the listed beneficiaries.
According to Jeanne Brutman, a financial advocate and strategist, both permanent and term life insurance can be easily protected from death and estate taxes. Using permanent life insurance, individuals can “hide” their wealth within the policy. The cash within the policy can often be considered tax-free when taken as a loan and accompanied with the correct dividend rider. The death benefit given to beneficiaries may also be tax-free if it is properly owned in a trust.
Even if you didn’t want to purchase permanent life insurance, the death benefit of term life insurance may help protect the financial future of your loved ones. The taxes taken out of an estate may limit the amount of money available to the people who depend on you financially. The tax-free benefit of term life insurance policies can help your family become more financially secure in the event of your death. You can rest assured that they may have the proper funds to help them continue enjoying their current standard of living.
Is life insurance worth it if you are wealthy?
Many would agree that yes, life insurance may be a useful resource in helping loved ones avoid estate taxes.
So, why is life insurance worth it if you are wealthy?
● Both permanent and term life insurance death benefits may not be subject to income taxes
○ Life insurance can be an effective tool to transfer wealth to beneficiaries
● Within 60 days of your death, all forms of life insurance may be considered liquid assets available to cover the immediate needs of your loved ones until your estate is settled
○ Life insurance may be one of the most efficient ways of handling estate taxes
○ Life insurance death benefits may prevent your liquid assets from being liquidated to cover immediate needs of loved ones
● When a life insurance policy is owned by someone other than the insured, death benefit proceeds may be kept out of the insured’s estate
● The cash surrender value of permanent life insurance may accrue tax-deferred and tax-free
○If you have the appropriate dividend option, loans may be taken out providing a tax-free flow of cash and can be repaid out of death benefits
● For a permanent life insurance policy, cash value may be guaranteed to grow over time
○ Your participating whole life insurance premiums may be guaranteed to accrue cash value. Once you’ve earned the cash value, you may not be able to lose it unless you borrow it from the policy.
○ Less than 5% of insurance companies have a participating Whole Life insurance policy available. Determine whether you have the right provider—you should feel confident that they will back this guarantee.
As you can see, there are multiple reasons why you can answer “yes” to the question “is life insurance worth it if you’re wealthy?”
