If you were told you could buy an investment that could grow tax-free, that could be used during your lifetime to acquire other investments without impacting its own growth, and that could help you both now, at retirement and on death with significant tax savings, would you be interested?
That is exactly what those who invest in permanent life insurance are experiencing today. People who have accumulated significant wealth are now making alternative investments in the life insurance space.
This isn’t the traditional life insurance you may be thinking. Most life insurance bought today is still temporary or term life insurance – effectively a rental of your life insurance coverage. This type of insurance is not an asset to you, as once the term expires there is generally nothing left for you to claim (unless of course you unfortunately pre-decease).
This life insurance is permanent in nature – meaning it will pay a death benefit at some future time. Because of that important feature, investors in permanent life insurance can achieve the following three benefits:
Earn tax-exempt growth:
Premiums paid into the life insurance policy are invested and can grow on a tax-exempt basis. When facing escalating tax rates either personally or corporately, that ability to shave off the tax impact on your growth is significant.
Collateralize for business or investment purposes:
The tax-exempt growth of your policy serves as a form of “equity” that can be used to obtain collateral lending. Similar to how you may have equity in your home or investment real estate that you can leverage with the bank to purchase more investments, the permanent life insurance operates the same way, but with two key improvements: you can scale your investment to suit your needs and lenders will often lend up to 90% to 100% of the equity in the permanent life insurance policy (versus 60-70% on the equity in Real Estate).
Estate Planning benefits:
Whether you need the Life Insurance to pay the Estate’s tax bill, or to equalize an heir who is not receiving the family business share, Life Insurance provides cash liquidity when you need it to help with your Estate Planning goals. In addition, when properly planned, you can achieve significant estate tax savings using corporately owned life insurance under the existing tax rules (and possibly gain “grandfathering” if those tax rules are changed in the future).
If you are paying too much tax now and have illiquid assets that will give rise to taxes on death (like real estate or corporate businesses /investments), give some thought to investing in life insurance.
This post was written by Marco Faccone