What items do you include in your financial portfolio? Often, the first things that come to mind are cash, stocks, bonds, and real estate. At Howard Kaye, we believe that if you’re not considering life insurance as an asset within your portfolio, you’re missing out on one of the most efficient and versatile financial tools available. Viewing life insurance as an asset can provide significant benefits, from tax-deferred growth to estate planning solutions. Let’s explore how life insurance can enhance your financial strategy and offer unparalleled flexibility.
If you thought life insurance is more of an expense than an asset, or that its primary purpose is to replace income upon the death of the insured, then we have a lot to show you about its broader functionality. In fact, for many people—particularly those with substantial assets—replacing income is either a secondary objective or perhaps not an objective at all.
We believe life insurance should be viewed as an asset and included in everyone’s portfolio. While it may be viewed more as protection, or as an investment “alternative,” life insurance combines many of the benefits found within other asset classes and several more unique features. Here are some important examples.
Life Insurance an Asset
If you own any sort of permanent life insurance, any amount of funds you put toward your policy above and beyond your cost of insurance will gradually cause your policy to accumulate cash value. Some people may opt for variable or index policies, which give that cash value the opportunity to grow quickly. Others may prefer a more traditional policy, in which cash value accumulates at a fixed interest rate or based on dividends.
Either way, each year that policy will grow and accumulate value on a tax-deferred basis. For some people, that money will only be accessed when the insured passes away and the death benefit is paid out. For others, the policy can be tapped decades down the road and used to pay for college expenses, provide supplemental retirement income, or cover other costs.
Life Insurance as an Estate Planning Solution
Perhaps the greatest purpose life insurance can serve is as an estate planning tool. Let’s say you want to create cash to pay estate taxes so your kids don’t need to sell off real estate holdings to create estate liquidity. Or perhaps you want to buy a big life insurance policy in your 60s to ensure that your family and the charities you engage with will receive adequate support upon your death. Life insurance can fully solve both of these problems.
In reality, life insurance is a very flexible vehicle that can be used to customize your estate plan. Because the death benefit can be free of income and estate tax if purchased inside of a properly structured life insurance trust, you have the opportunity to dodge nasty estate taxation and substantially enhance your legacy.
Supplemental Retirement Income
After funding a permanent life insurance policy for many years, it is likely you’ve accumulated substantial cash value. Unlike annuities and other less tax-efficient vehicles, life insurance policies if properly structured allow you to remove your cash value tax free, providing a tax-efficient income stream during retirement.
Any loans can then be repaid out of the death benefit proceeds. As long as you’re careful about keeping enough cash value in the policy to prevent a lapse, life insurance can be a very efficient supplemental retirement income vehicle.
As some of the above examples demonstrate, life insurance can and should be viewed as an investment alternative and asset within your overall portfolio. At Howard Kaye, we have been creating custom estate planning solutions for decades. Our ability to show high-net-worth individuals how to rethink their use of life insurance has helped them pass more money along to family and charity than they ever thought possible. Contact us today by calling 800-DIE-RICH and learn what we can do for you.
