Wealth preservation and accumulation using Whole Life Insurance.

When people accumulate wealth, they typically have a sincere desire to preserve it so they can financially protect future generations. One way to do that is by using life insurance. Life insurance is a great tool for the financially savvy to maximize their after-tax estate and provide money for their heirs.

If you have a higher net worth and want to use life insurance as an investment tool or just want reassurance in your financial future, this article is for you. While life insurance is not just for the wealthy, there are several reasons why they might consider it. One of those reasons is wealth creation and preservation.


Favorable Tax Laws for Estate Preservation


One reason the wealthy purchase cash value life insurance is for tax purposes. By law, life insurance premiums and proceeds are tax-exempt, which can provide asset protection in the process.

The proceeds of life insurance are also free of any estate taxes. This could be appealing to the wealthier individual or anyone who seeks to minimize estate taxes.

In 2021, as per the IRS, policy owners can leave up to$11.7 million without having to worry about estate taxes. The proceeds of a large life insurance policy can be used by the policyholder’s heirs to pay estate taxes for those whose estates surpass the exemption threshold.

Additionally, life insurance premiums are not subject to estate taxes. For example, if a policyholder spends a half-million dollars for a $2 million insurance policy, the initial premium is taken from the estate and is tax-exempt.

More importantly, the life insurance death benefit is a tax-exempt asset that can be passed on to the beneficiaries listed on the policy.


Protection for Business Owners


Whole Life Insurance can be the most affordable method for funding a buy-sell agreement between business owners (partnership) of member/managers (LLC).

Owners or partners can draft a buy-sell agreement that clearly defines the value of the business and establish a selling price if an owner or partner dies, the successor(s) will use the death benefit from the life insurance policy the successor(s) purchased on the owner or partner who died, and then use those funds to purchase the business back from the heirs of the owner or partner that passed.

For example, Richard and Anthony opened a real estate brokerage catering to high-net-worth prospects. The firm was incredibly successful because the high-net-worth market in their area was considerably underserved.

Since both partners are married and have children, Richard and Anthony purchased life insurance on each with a death benefit sufficient to cover the value of the company.

If either partner dies unexpectedly, the surviving partner can use the life insurance funds to purchase the deceased partner’s share of the business from the heirs.

This would allow the surviving partner to continue with the business and provide the deceased partner’s family with income from the sale of the business.



Tax-Exempt Retirement Income


Whole Life Insurance has some similar tax advantages to a Roth IRA. With both investment products, the earnings or dividends are tax exempt.

When you take money as qualified withdrawals from a Roth IRA there is no tax liability. As for whole life insurance, policyholders can withdraw money via policy loans which are not subject to repayment. Since withdrawals are loans and are not considered income, they are tax-exempt to the policyholder.

Moreover, unpaid policy loans are simply deducted from the death benefit when the policyholder dies and the balance will be paid to the beneficiary tax-free.

This will become an important part of retirement income because the retiree can minimize the taxes that must be paid on the total retirement income.


Whole Life Insurance as an Asset


Owning whole life insurance is not just about the death benefit but also the creation of an asset.

The cash accumulation resulting from compound interest and dividend earnings are key elements in the ownership of a participating (dividend earning) whole life policy.

If or when the insurance coverage is no longer needed, the policy can be sold to a third party for a lump sum cash payment. Generally, the settlement payment is greater than the surrender value of the policy but somewhat less than the actual death benefit.

When the sale is completed, the third party that purchased the policy becomes the beneficiary on the policy and assumes any outstanding premium payments due on the policy.

When the insured person dies, the death benefit will be paid to the beneficiary which is the new owner of the insurance policy.

Generally, policy owners who sell their life insurance to a third party do not have life-threatening illnesses and tend to be senior citizens who need money for retirement.

By selling their cash value life insurance policy and receiving a cash payout, the policyholder can increase their retirement income with the largely tax-exempt payout from the purchaser.

Other reasons a policyholder might consider a life settlement include:

  • He or she can no longer afford the premium payments
  • The death benefit is no longer needed
  • Cash is needed for financial emergencies
  • The policyholder is a business owner who is retiring and will no longer need the key-person coverage.



The Bottom Line


Whole Life Insurance can provide a number of benefits regardless of a person’s net worth or need for wealth accumulation. When considering all of your options, think about why life insurance can be a solution for all of your financial needs.

An experienced and reputable insurance professional can assist you with your insurance needs analysis and will typically do so at no charge. Since the agent you select will earn a commission from the insurer, you’ll typically not have to pay them to represent you.

Moreover, when you use an independent agent, he or she will represent multiple highly-rated insurers and shop your case with all of them. Since an independent agent is not employed by the insurance companies, he or she can put your needs first and foremost.

To learn more about participating whole life insurance and how it can deliver the protection you need for your estate or business, contact Curt Gibbs, LACP at Structured Wealth Strategies at (800) 595-1130 or send him a message through the website.


Free Consult

Set Up a Free Consultation Today!

We’ll develop a retirement income financial plan that maximizes assets, minimizes taxes, and guarantees the most inflation-adjusted income possible utilizing the fewest amount of assets.

Curt Gibbs