Using Insurance as an Asset Protection Tool
“All my kids are grown. I don’t need life insurance.”
That’s typically what we hear from older clients who come to us for financial planning assistance. When they say that, we follow up with another question: Do you have assets that you want to protect? If so, then you do need insurance, and the sooner you get it, the better.
Most people think of insurance as a legacy planning tool, but it can also be good for protecting your assets. Not only do insurance policies offer wealth creation, they minimize risk.
At Howard Kaye, we use insurance policies, including universal life insurance and annuities, to protect our clients’ assets from everything from creditors to bad business decisions. There are many ways that insurance can be used for asset protection. Here are just a few ways insurance becomes an asset protection tool.
Portfolio insurance. Portfolio insurance is how we’re able to protect our clients from market risk while also allowing you to continue investing. By purchasing life insurance and annuities, you can essentially insure your portfolio so that even in the event of a market crash, your investments will be recovered. In this case, our clients purchase policies that are equal in value to their stock portfolios, which can then be cashed in if the stock prices drop.
Creditor and judgment protection. Strategically using life insurance and irrevocable life insurance trusts allows you to protect your assets from creditors and judgments, which become a major risk the wealthier you get. This is especially useful if your beneficiaries may have financial problems because their trust payments are also protected from judgments and creditor liens.
Asset recovery. If the worst happens and a business or property value drops significantly, a tax-free life insurance death benefit can be used to insure against the loss and ultimately help restore your legacy and fully recover the loss.
Business continuity. In the case of a principle partner’s death in a business, insurance can be used to protect that business’s assets by using it as a source of funding for a buy-sell agreement. This helps you keep assets with the business rather than having to sell them off to buy out a partner’s share.
Reducing longevity risk. Annuities are becoming particularly useful in reducing longevity risk by helping our clients stretch out their savings. If you planned for 20 years of retirement and are starting to think that may not be enough, annuities can make those funds go further.
Paying for health and disability costs. Longevity annuities can also offer riders that assist if you become disabled. That way, you won’t have to deplete your savings or sell off investments to cover unexpected medical costs or long-term care.
Estate tax sheltering. The asset protection continues even after your death, as we can hold funds in life insurance trusts as a means of reducing total estate taxes. Our strategies can create a tax-free pool of funding to help with final expenses and protect assets. That way, your money can go to your heirs and not the IRS.
Insurance has been a good way to hedge risk late in life for many of our clients, especially cash value life insurance. These types of policies see a reasonable return while avoiding the risk of the market. The best part is that large insurance policies can be purchased for a fraction of their value. This way, you can insure just about any asset.
Howard Kaye works with a wide range of insurance companies to help our clients create and preserve their wealth. Our asset protection strategies help our clients die wealthy, so they can leave behind a legacy. For more information on asset protection, contact us today at 800-DIE-RICH.