What Is Life Insurance In Estate Planning?
Estate preservation is a financial strategy to help you manage your estate while you are alive and ensure its proper distribution when you pass. Life insurance is often a key component in estate preservation. In fact, estate preservation through a life insurance policy is widely considered the most cost-effective and efficient way to distribute one’s estate after death (see the benefits below).
Benefits Of Life Insurance For Estate Preservation
The tax benefits are substantial with life insurance. This is perhaps the primary reason many wealthy individuals are choosing life insurance for estate preservation. Here are several notable benefits of life insurance for estate preservation.
Create A Fully-Valued And Tax-Free Asset
Your life insurance policy is an asset like any of your other assets, except, in this case, the asset is free from taxes. You can use this to add to your portfolio and diversify your wealth, along with enjoying tax benefits. As it pertains to estate preservation, this asset (your life insurance policy) can add a significant amount to your wealth transfer (in the form of a death benefit).
Transfer Wealth In A Tax-Free Manner
The death benefit with a life insurance policy is free from taxes. This means the payout on your policy would go entirely to the beneficiaries rather than the government taking a large portion. This, in itself, is enough for many individuals to use life insurance for estate preservation purposes.
Have Access To Cash Value (With A Whole Life Policy)
When structured properly, whole life insurance (rather than term-life insurance) is also an asset you can draw from while you are alive via cash value. As you pay premiums, some of the payment goes toward a cash value account. You can then draw from this cash for a variety of purposes. These withdrawals are usually tax-free.
Ensure A Smooth And Certain Wealth Transfer
Many fear that the estate transfer process could be ambiguous and potentially riddled with a family feud. In fact, this is the biggest concern for many wealthy individuals as it pertains to estate preservation. Life insurance helps ensure a smooth and certain wealth transfer to the appropriate parties without ambiguity.
Who Should Consider Estate Preservation?
Estate preservation planning is recommended for all individuals 40 and older, as well as younger individuals who have a high net worth. It is especially important for those who may be vulnerable to an ambiguous estate and wealth transfer that could be strongly impacted by taxes.
Ready To Preserve Your Estate With Low Tax Obligation?
Vector Financial Group offers estate preservation planning services and serves as an insurance broker for individuals who desire to protect their accumulated net worth. Through a life insurance policy, we can help you preserve your estate with a low tax obligation. To learn more and get started, contact us today.