There are plenty of sound economic reasons why even billionaires should include life insurance when planning an estate.
Life insurance can provide valuable and convenient financial liquidity for your estate and has value as the life insurance proceeds can be used in a variety of ways. This includes not only for the structure of your estate, but also for your heirs.
Advantages of Including Life Insurance in Estate Planning
The first thing to consider is that a permanent life insurance policy such as whole life or universal life can be used as a valuable financial instrument because it gives you the ability to use a permanent life insurance policy as a form of tax-free investment growth.
A life insurance can be included as a segment of any portfolio which has non-registered investments for the ultra wealthy. The life insurance proceeds can provide your heirs with non-taxable death benefits and is an excellent vehicle to transfer wealth through more than one generation such as both your children and grandchildren.
Along with the death benefits, permanent life insurance policies also include a cash value accumulation component which can be considered as an asset. Why? If the policy is owned by the insured billionaire or through their company, the cash can be accessed while the billionaire is still alive.
Life Insurance is a Stable Investment
The cash value accumulation segment is a stable investment because there is a long history of life insurance investments providing a fairly stable return which is advantageous in unstable economic times.
Life insurance policies can also be used in a variety of ways with trusts. This is a detailed topic in itself so you should raise this issues with your financial or tax advisor to get the details.
Another interesting strategic use of a life insurance policy is to combine it with a life annuity, also called an insured annuity, which can offer even higher yields. This approach is better suited for those who older than 65 and have assets which are non-registered.
Life Insurance for Succession Planning
If a billionaire is planning to transfer shares of their business enterprise to their children, then these assets can be subject to taxable capital gains. This requires that cash reserves may have to be accessed which might require the selling of assets or to borrow money to pay for the capital gains tax. The proceeds from a life insurance policy allows the children to access cash liquidity through the proceeds of the policy to pay for the capital gains tax.
There is another advantage for this same scenario as some siblings may no longer be interested to be shareholders in the company, and the life insurance proceeds can be used to buy out these non-interested family members.
Other Ways Billionaires Can Defer Taxes with Life Insurance
It’s all about the two indelible truths – Death and Taxes. When you die there will be estate and other taxes that have to be paid. When you have this kind of money the taxes can be huge.
With a life insurance policy, the proceeds such as the death benefits also have to be paid to the beneficiaries who can use these assets as immediate liquidity to cushion the effect of the taxes that have to be paid. This means that they may not have to use the estate’s assets to cover these taxes or can soften the bill.
Many billionaires are also benevolent and have charities which they like to support. A charity can be named as a beneficiary on a policy and can be used as a non-taxable bequest to one or more charities. A life insurance policy might be a preferable vehicle instead of simply transferring wealth from the estate to a charity.
Benefits of Life Insurance in Wealth Transference
There are also tax advantages if a billionaire wishes to transfer their wealth to either their children or grandchildren. Since the proceeds are non-taxable, a life insurance policy is a convenient means to pass financial security to their children, or grandchildren…(continued on page 2)