Most people take up life insurance to ensure there is a financial cushion for their children to fall on in case the breadwinner passes away. Others purchase life insurance to help deal with taxes. These are the main reasons that drive people into visiting insurance companies. Oblivious to many, life insurance can also be used to solve other financial problems. In the U.S., people are using life insurance to cover the money that they lose in taxes, to make the most of their pension and to even fund college for their children and grandchildren. Here’s an in-depth look into non-traditional uses of life insurance:
In most cases, the families’ wealth is not readily liquidated. Most of their wealth consists of assets that cannot be shared equally among children in the event of an inheritance. For instance, a couple with three children might be the owners of a farm and which constitutes most of their wealth. Only one of their children is interested in the farm. Since they cannot give the farm to one child and have an equal amount to give to the other kids, they can result in life insurance for the value of the farm. Upon the death of the couple, one kid will have the farm while the others will benefit from the life insurance payout. This is also being leveraged by business owners who use life insurance to buy out the share of business given to the children who are not interested in joining the company. Business partners also take up life insurance to allow the heirs of their partners to buy out their portions of the business.
In this case, life insurance is leveraged in wealth replacement. Investors take up life insurance to cater for estate taxes that will be subjected to their holdings. This saves his successors from having to sell assets to have the taxman off their back. Additionally, people pair life insurance with instruments such as Charitable Remainder Trust where the investors donate an asset to a charity while getting the income that is accrued from the asset. They can then buy an insurance policy using this income and recover the money that the charity receives to be used by the heirs. This way, the property is exempted from the tax deduction, and the investor remains with the wealth.
Paying for college
If parents or grandparents want to fund their children/grandchildren’s college education, they can take up a life insurance policy for the whole amount, and their wishes will be granted even after they pass away.
Life insurance is not just a financial safety net for your heirs. It is also a way to liquidate assets and replace wealth too. Take advantage of these benefits and have your vulnerabilities covered.