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How Are These Strategies Typically Used?
Life insurance is first and foremost just that:
LIFE INSURANCE! And in many cases
the death benefit paid out by life insurance policies is the most beneficial and useful
aspect of the product. But the ability to aggressively build cash value and borrow
from it tax-free can be an equally attractive and, in some cases, crucial part of one’s planning.
Consider Using Tax-Free Loans For:
Long-Term Cash Accumulation:
Do I Have Enough Long-Term Care?
Did you know that about 70% of people over the age of 65 will require some type of long-term care services during their lifetime?
According to recent studies conducted by the National Clearinghouse for Long-Term Care Information (www.longtermcare.gov), more than 40% will need care in a nursing home. Do you have a plan to help cover these costs?
Why is it that some people don’t own long-term care insurance? Many say it is too expensive and they don’t want to pay for something they may never use. Fair enough—those are valid reasons! So how will you pay for long-term care?
Is My Estate Protected?
Tax-free Death Benefit
When planning your legacy, consider that life insurance allows you to leverage your money in a way that is free of taxes, unlike typical investments that may leave your family with a large tax burden when you die.
The proceeds of life insurance are always tax-free. Life insurance is one of the easiest ways to transfer money from this generation to the next. Take a look at your full financial picture and ask yourself three questions:
What Will Happen to My Business?
No matter the size of your company, as a business owner, you have a responsibility to care for your employees, partners, and customers. The inherent flexibility of life insurance makes it an excellent tool for handling many problems that small business owners often face, such as employee retention, succession planning, and even deferred compensation.
Protect Your Business
Let’s say you have an employee who is of particular importance to a company. Maybe they are a designer for a clothing line and their good eye for style has made the company very successful. Or perhaps they’re a technical person who understands systems within your company and without that person’s expertise operations would come to a screeching halt.
These types of people are extremely valuable to companies, and their untimely sudden removal can cause catastrophic financial loss to companies without proper protection.
Key-Person Coverage is purchased on a “key” employee to recoup the financial loss the business would incur upon the employee’s death. Key-Person insurance is owned and paid for by the company. This coverage can provide crucial business stability.
A typical business owner can often relate to phrases such as “asset rich” and “cash poor,” meaning they typically reinvest personal earnings into their business to build it up to sell later in life as a large part of a retirement plan.
The problem arises when a business partner dies unexpectedly, and their portion of the company is owed to their beneficiaries. Many times, the equity is tied up in other business assets and is completely inaccessible without selling large portions of the company, thus causing considerable financial loss to the surviving business partner(s).
How can life insurance help? By providing the much-needed cash to a spouse or other beneficiaries to buy out the interest in a business without having to liquidate company assets. This is called a buy-sell agreement.
In a nutshell, it is a legal contract restricting the right to dispose of a business interest to specified parties according to specified terms and is most easily executed by life insurance.
Executive Bonuses and Deferred Compensation via Life Insurance
Sometimes called a section 162 plan, an executive bonus arrangement is a private, non-qualified means of rewarding select employees with permanent, cash-value life insurance for the beneficiaries of the executive as well as the potential for cash value accumulation.
In essence, the executive takes out a life insurance policy on themselves, and the company bonuses the premiums paid by the employee. This bonus is a tax write-off for the company, can be added to the cash value of the policy, and grown for the owner of the life policy, the employee.
The same goal can be reached through a deferred compensation program, whereby the company, not the employee, owns the life insurance policy and the premiums are paid outright by the company.
This gives the company more control over the life insurance, but it still acts as a cash bonus to the executive.
Advantages to Cash Value Life Insurance as a Benefit to Employees: