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The Role of Insurance in Your Financial/Estate Plan
When used effectively as part of an overall financial or estate plan,
life insurance and other types of insurance products can serve many
purposes for both individuals and businesses.
How Insurance Benefits Individuals
Below are some of the most important reasons why you should consider
insurance in your financial/estate plan:
- Estate Preservation
You can offset the costs that are incurred at death and preserve
your estate by having the insurance proceeds pay them for you.
Taxes, liabilities, estate-related and other future costs can
all be offset by your permanent coverage.
- Tax Minimization
Tax-exempt insurance (such as universal or whole life insurance) can
eliminate the annual taxes you pay on your investment growth, as well
as those payable when you die. Individuals tired of being punished
for strong earnings may appreciate such an opportunity.
- Estate Maximization
By taking advantage of the tax-preferred status of universal or whole
life insurance, you can maximize the value of assets you plan to pass
on to the next generation. The long-term value of these products can
often far eclipse what would otherwise be earned through regular
investing.
- Wealth Creation
If you are in the early stages of wealth accumulation, insurance can
be a low-cost way to create a financial safety net in the event there
is a loss of an income earner.
- Income Enhancement
Certain insurance products can provide a supplemental stream of income
during retirement. The net income derived from this strategy may
be significantly higher than what is achievable with traditional
fixed-income vehicles, especially during times of low interest rates.
- Liquidity
When the unexpected occurs, insurance proceeds can provide much needed
funds to cover financial obligations like taxes, outstanding bills
and last-minute expenses. These proceeds are allowed to bypass the
estate and, therefore, the entire probate process. That means these
funds will not be held up in court or subject to fees that normally
apply to the rest of your estate, such as executor, lawyer and
accounting fees.
- Disability Protection
Most people understand the benefit of life insurance as financial
protection against death, but few realize that the odds are far
greater that a person will become disabled. This can mean a major
loss of income for your family. You might also consider how long
your investment portfolio would last if you were forced to liquidate
in order to replace that income. Disability insurance can provide
funds to offset living expenses during times of sickness or accident.
- Charitable Giving
There are several insurance products and strategies that allow you
to provide funds to a charity or charities of your choice in the most
cost- and tax-effective way possible.
- Diversification
We all have the same pools of capital within which to invest. But
life insurance is another pool of capital—a tax-exempt one that
can add another layer of diversification to your overall asset
allocation strategy. It is an excellent way to complement the rest of
your overall portfolio; by moving a small percentage of your
non-registered pool into a policy each year, you can further diversify
your interests and spread your assets over one more pool of capital,
namely your tax-exempt life insurance pool.
How Insurance Benefits Businesses
Below are some of the top insurance strategies you may wish to consider
as a business owner:
- Funding Buyout Agreements
In the case of partnerships, the death or disability of one partner
can have a devastating effect on the survival of a business. Insurance
can provide an excellent method of funding buyout agreements so that
the remaining partner takes full control of the business and the
surviving family is properly compensated.
- Shared Ownership
For companies who wish to retain top employees, the shared ownership
of a permanent insurance policy can be an attractive opportunity.
It protects the company against the death of the employee, and
motivates that person to remain with the firm through the enticement
of an attractive, low-cost retirement asset.
- Minimize Corporate Taxes
If corporate assets are invested in fixed income, then an insurance
strategy can not only reduce its taxable income but it will lower
the value of the business by the amount of the investment, thereby
reducing the inevitable capital gains tax liability.
- Maximize Corporate Assets
By taking advantage of tax-deferred growth inside universal or whole
life insurance, corporate assets can avoid accrual taxation and grow
to a much greater value than if they were invested in a regular account.
Not only that, but upon death, most, if not all, of the proceeds can
be paid out of the corporation tax-free. Ordinarily they would be paid
out as taxable dividends, requiring approximately 1/3 of the value to
be paid in taxes.
Take the next step…talk to an advisor.
Our Investment Advisors
are here to help recommend the solutions that are best for you. To learn
more, please contact an advisor
today. Or, ask an advisor to contact
you.
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