5 Ways to Leverage your Life Insurance
by Richard S. Bernstein on Apr 8, 2017
Most people purchase life insurance to provide for their heirs upon their death, but did you know that life insurance can do more than replace someone’s income? Below are five ways that life insurance can be used as a financial planning tool:
1. Fund or Save a Business and Provide Liquidity The cash value of an insurance policy can serve as your own personal bank to borrow from to fund or save a business. Successful businessman J.C. Penney used his policies to keep his company afloat when the Great Depression left his company in financial ruin by borrowing against the cash value of his life insurance policies. Innovative entrepreneurs Walt Disney and Ray Kroc used cash in their policies to fund the start-up of their businesses.
2. Pay Estate Taxes Even billionaires purchase life insurance! An untimely death can force heirs to sell liquid assets at an inopportune time to pay federal taxes up to 45 percent. (See our article “Why a Billionaire Just Purchased a $201: Million Life Insurance Policy” November 27, 2015)
3. Provide Financial Stability for Children and Grandchildren A whole life insurance policy can provide basic life insurance coverage for children/grandchildren and will build cash value. The cash value grows on a tax favored basis and/or the cash value accrued is a financial resource that can be used to help pay for college, a wedding or a down payment on a home.
4. Fund Irrevocable Life Insurance Trust Irrevocable Life Insurance Trusts are one of the best possible estate planning strategies. When properly structured in a trust, life insurance proceeds are free of gift tax, generation-skipping tax and income tax. This type of trust, commonly known as an “ILIT” has been recognized by the IRS for decades. An ILIT must be irrevocable, but there are several legitimate ways to change it. One of the greatest benefits of ILITs is that they can be setup to stay in the trust estate tax-free for many generations. Also money held in trust is protected from creditors and lawsuits.
5. Protect Real Estate Life insurance can do more than just pay off a mortgage after one’s death. It can help save your home or real estate investments during a financial downturn like 2008 by borrowing from the cash value in a whole life insurance policy. Also, a life insurance policy can provide another way to pay estate taxes if an inherited property is hard to sell or does not generate enough cash flow.
If any of the above scenarios apply to you and your family, please contact one of our experienced advisors at 561.689.1000 for a confidential consultation