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LIFE INSURANCE CAN ADDRESS MANY PLANNING OBJECTIVES
Pay off debts
Replace lost future earnings
Pay estate transfer taxes
Equalize inheritances among family members
Provide a lump sum for charitable desires
Create a family legacy
Fund key person & business succession plans
Provide financial security for special needs dependents
VALUE OF LIFE INSURANCE AS AN ASSET
Can be structured to provide a known death benefit when the insured dies
Provides greater certainty about the value of assets to be passed on to heirs
Some types of policies allow for flexible premium payments, allowing cash flow to be temporarily diverted to take advantage of other opportunities
Outstanding leverage in the early years of a policy when total premiums paid are very small relative to the large death benefit that would be paid
Provides immediate liquidity in the event of an unexpected death
Death benefit can provide a competitive rate of return at the insured's life expectancy
May be structured to provide significant cash accumulation
Cash values can be accessed by policy loans, providing an easily accessed source of funds relative to traditional sources of credit
Can provide a hedge against market volatility by shifting risk from other assets to the life insurance carrier
May provide significant creditor protection depending on the state of ownership
THE TAX EFFICIENCY OF LIFE INSURANCE IS OFTEN OVERLOOKED
Death benefits are generally income tax free* under IRC Section 101.
Cash values grow tax-deferred and may be accessed through tax-favored loans and withdrawals.
Ownership may be structured so that death benefits are not subject to federal estate taxes.
Loans and withdrawals from an insurance policy may generate an income tax liability, reduce available cash value and reduce the death benefit or cause the policy to lapse.
Guarantees are subject to the claims paying ability of the issuing company.
Fixed insurance is not a security and has no correlation to or participation in the securities markets.
Neither The White Planning Groupo nor NFP Advisor Services offer tax or legal advice. Please consult appropriate counsel when engaging in complex tax-oriented planning strategies.
* For federal income tax purposes, life insurance death benefits generally pay income tax free to beneficiaries pursuant to IRC Sec. 101(a)(1). In certain situations, however, life insurance death benefits may be partially or wholly taxable. Situations include, but are not limited to: the transfer of a life insurance policy for valuable consideration unless the transfer qualifies for an exception under IRC Sec. 101(a)(2) (i.e. the “transfer-for-value rule”); arrangements that lack an insurable interest based on state law; and an employer-owned policy unless the policy qualifies for an exception under IRC Sec. 101(j).