Why The Wealthy Should Have Insurance - Part I

December 20, 2019

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Something that happens when someone has great wealth is a desire to keep as much as possible in the family by passing along assets to future generations.

Life insurance is a popular way for the wealthy to maximize their after-tax affluence and have more money to pass on to heirs.

Here's how and why insurance helps:

  1. Life insurance can be a useful financial tool for business owners. 
  2. It is legal to own several whole life insurance policies. 
  3. Life insurance policies are not counted as part of an estate and are not taxed by the federal government. 
  4. A life insurance policy can be sold for its cash value. 

Tax Laws Favor Insurance

Tax law grants life insurance premiums and proceeds tax benefits and allows the rich a way to protect their assets. The proceeds of life insurance are tax-free to the beneficiary. Wealthy people don't want their deaths to be a financial thicket for their heirs, so the death benefit is a big component of any life insurance strategy. But there are additional advantages to life insurance.

Policy owners with estates of $11.4 million or less (or $22.8 million for couples) can leave this amount to their beneficiaries without having to pay estate taxes as these are the limits in 2019, as per the IRS. But what about individuals or couples with estates worth more than the limits? The proceeds of a large life insurance policy can be used by the heirs to pay a tax bill for those wealthy individuals whose estates surpasses the estate tax exemption threshold. 

Insurance premiums also won’t be subject to estate taxes. For example, if a wealthy individual spends $500,000 for a $2 million life insurance policy, that initial premium payment comes out of the estate and won’t be taxed. To look at the insurance premium another way, the after-tax value of the $500,000 is $300,000, thus for $200,000 ($500,000 premium amount - $300,000 estate tax), the family receives a $2 million guaranteed life insurance payout. That's a guaranteed return on the premium payment. 


Keeping you protected.




All Access Insurance in Littleton, CO,  who represents multiple insurance companies as a “Broker” and provides products for auto, home,  commercial, workers compensation, and much more! Call us today for a free quote at (303) 932-1700.