The idea behind getting life insurance for many people is for their heirs to have enough sustenance and provision after their death. Many people desire for their family members to continue maintaining the lifestyle they had after death. As a result, they set up life insurance to cater for such needs.
Unknown to most people; however, there is more to life insurance than covering a person's income. This article will shed light on five unique ways you can use life insurance as a tool to plan and structure your financial future:
Fund for a Business with the Provision of Liquidity
The cash amount of your insurance policy can be your bank via which you can borrow money. These funds can be used to fund or save your business. When a crisis arises or any unplanned expenses, you can tap into your insurance policy, borrow and use it to keep the company standing. Many great businesspersons like Ray Kroc and Walt Disney have used funds in their policy to fund their business.
Fund Estate Taxes
Life insurance does not exclude billionaires. Premature death that wasn’t expected might require heirs to dispose of liquid assets at the wrong time to take care of federal taxes. Such taxes might amount to up to 45%, which requires a substantial financial commitment.
Give Kids and Grandchildren Financial Stability
The idea behind a whole life insurance policy is to give all essential coverage for the kids and coming generations. It is also meant to accrue cash value. This cash value increases at a rate that favours tax. Such cash value they get can be a potent financial tool that can take care of college tools, home payment, wedding expenses and other future expenses.
Take Care of Irrevocable Life insurance trust
One of the most intelligent strategies to plan your estate is via irrevocable life insurance trust. When it is designed into a trust, such life insurance proceeds do not have to take care of income tax, gift taxes and generation-skipping taxes.
Uncle Sam recognizes this form of trust, also called ILIT (Irrevocable Life insurance trust), as it existed many years ago. While an ILIT must be irrevocable, you can change it in many ways. It comes with the advantage of setting it up in the trust estate tax-free for generations down the line.
Besides, lawsuits and creditors cannot touch funds in a trust.
Keep Real Estate Protected
Life insurance can do more than paying off one's mortgage on the death of someone. It can be a saviour for your real estate investment or home when there is a financial downturn. You can borrow cash from your life insurance policy.
Also, with your life insurance policy, you get other ways to take care of estate tax if any property you inherit does not give enough cash flow or is proving hard to sell.
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Karen Munoz, EA