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Creating Family Wealth: Using Life Insurance for Asset Protection

creating family wealthPeople use life insurance for different needs. Most people take life insurance coverage to protect their dependents in the event of premature death. However, some people are increasingly using these types of insurance coverage as a form of creating family wealth. 

In recent years, there has been an increase in the number of people seeking solutions for asset protection as well as estate planning. High net worth investors are increasingly turning to life insurance policies as they try to protect their assets from adverse events.

  • increased litigation risks
  • decreased compensation and earnings

These are just some of the reasons why high net worth investors are turning to life insurance products as they seek to protect their assets. If you’re creating family wealth for generations to come, using life insurance might be something for you to look into.

Creating Family Wealth: Using Life Insurance for Asset Protection

In the U.S, life insurance is creditor protected in a number of states, seen as one of the reasons why people are also turning to it for asset protection. Life insurance is proving to be reliable in converting exposed assets, subject to credit risk, into protected assets. It uses some of the statutes engraved in state laws. 

In addition, life insurance provides much-needed financing in the form of death benefits. This is how beneficiaries can use to protect and develop properties or assets left behind by the deceased. Conversely, life insurance is not only designed to replace income upon the passing away of the insured. It also accomplishes other goals, the key among them being building and protecting assets.

Likewise, when you purchase life insurance, you are not buying it to protect assets for yourself. Instead, you are purchasing it to protect assets on behalf of your dependents.

Below are some of the ways you can use life insurance to protect your assets while creating family wealth.

Related: 3 Questions to Ask When Buying Life Insurance

Portfolio Protection

Unknown to most people is that life insurance can help recoup some of the losses incurred in an investment portfolio. In case of a market crash that results in the loss of a significant amount of invested capital, life insurance can provide some form of reprieve.

By purchasing life insurance that is equal to the value of an investment portfolio, the insured can rest assured that the needs of his or her dependents will be well-taken care of, given the size of the death benefit. In this case, the beneficiaries would be able to compensate any income lost from an investment portfolio with the death benefit from life insurance.

Estate Tax Sheltering

Tax sheltering has to be one of the biggest benefits of life insurance when it comes to asset protection. Asset protection must continue even when the owner is not there.

By holding funds in a life insurance trust, beneficiaries can:

  • reduce estate taxes
  • lower tax burden

All this as a means of protecting capital. Reducing the portion of the estate that is lost to the government for taxation is of great importance when it comes to estate planning.

That said, life insurance would come in hand in providing the much-needed financing that could help settle part of the tax burden. In some cases, the premiums paid towards life insurance are tax-deductible. This goes a long way in deducting the overall taxable income.

Related: Life Insurance – Do You Need It?

Creditor Protection

One of the biggest risks that anyone planning to leave beneficiaries something should always consider is the creditor’s risk. Creditors can claim an estate as a way of recouping anything they loaned out. By using life insurance and life insurance trusts, you can protect your assets from creditors as well as other judgments.

What this means is that in the event you pass away, creditors would not be able to claim your estate. Therefore, you can ensure your beneficiaries are well protected. Irrevocable life insurance trusts should be able to cater for any financial problems that the beneficiaries may have as they are protected from creditor liens.

Business Continuity and Protection

Life insurance plays an integral part in a business partnership.

In the event death afflicts one partner:

  • the business would still continue, given the death benefit left behind
  • the death benefit would go a long way in protecting the business and its assets from seizure by settling any underlying debts

A life insurance death benefit might help a business keep hold of its assets instead of having to sell them in order to settle debts. Similarly, the death benefit could help cater for costs that a business might have to incur in the race to replace the deceased partner. Companies like InsureChance specialize in providing life insurance to business owners for those very reasons. According to their founder Mack, “life insurance can be vital to protecting your business against worst-case scenarios.

Wealth Protection

Life insurance is designed to provide coverage against unforeseen adverse events. For this reason, one can decide to create and protect wealth by taking a life insurance policy.

For instance:

  • a death benefit left behind can help cater for mortgage payments
  • you can avert the risk of beneficiaries losing a house, for not being able to make payments

Similarly, a death benefit issued upon the death of the insured can go a long way in settling the college fees of children left behind. Thus, averting the risk of having to sell assets left behind in a bid to generate some form of income.

Riders Benefit

Riders are add-ons added on top of insurance coverage for additional coverage. They can prove to be vital when it comes to asset protection down the road.

Most life insurance policies come with riders such as:

  • term rider
  • critical illnesses benefit riders

Such options provide additional protection beyond what normal savings can offer. The money paid because of the riders can, in this case, be used to offset underlying expenses. It helps by averting the risk of people having to sell some of their assets to be able to generate much-needed funds. Consequently, the money paid through a rider add-on can help protect underlying assets that would have been sold to generate the much-needed financing.

Conclusion

Life insurance plays an integral part in asset protection and creating family wealth. The death benefit left behind in the event of the insured passing on can go a long way. It helps in providing much-needed financing for creating additional wealth or protecting underlying assets from seizure because of debt.

Are you considering life insurance for creating family wealth?

Money Retirement

AUTHOR LaTia Longuemire

My name is LaTia Longuemire. I enjoy writing, singing, and cooking in my spare time. My passion is helping others. At this stage in my lifetime, I'm primarily focused on my children. They are everything that keeps my world spinning.

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