Advisors know full well that life insurance is a great tool in overall wealth planning, but some consumers may not think of such policies for other planning needs. Education, then, is key when advisors meet with consumers who want to plan their financial futures but haven’t considered life insurance.
Planners and advisors should be sure to mention that life insurance is a tax-efficient option that has a death benefit that is not subject to income tax; can be structured outside of the estate to remove any estate tax liability from the death benefit; and has cash values that grow tax-deferred; and can be accessed through tax-favored loans and withdrawals. In addition, they should also make sure clients understand that loans and withdraws 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.
Life insurance policies are financially beneficial in that they can provide policyholders cash on hand to pay off debts, replace future earnings potential, pay income and transfer taxes, fund a business succession plan, equalize inheritance, provide a lump sum for charitable desires, and create a family legacy.
The cash-on-hand benefits of life insurance are just an extra bonus to the policies’ well-known abilities, including to:
- Mature at an undefined date;
- Allow for variable premium contributions;
- Provide liquidity in the event of an unexpected death;
- Shift risk from the insured/family to the life insurance carrier;
- Provide a fixed sum that is predictable and defined; and
- Provide an opportunity for a high rate of return based on when mortality occurs.