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Posts tagged Whole Life Insurance
Here are some important Planning Opportunities with Permanent Life Insurance under American Tax Relief Act of 2012.
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Tax Deferral and Tax Avoidance will become increasingly popular. Permanent life insurance has the ability to not only offer tax‐free death benefits but also tax deferral and tax‐free access to cash values. If properly structured in a trust life insurance death proceeds can also avoid estate taxes.
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The IRR offered by life insurance may prove to be a viable alternative to non‐performing assets. The internal rate of return or IRR on the death benefit can be competitive investment alternatives for clients with non‐performing assets in their portfolios like CDs, Muni‐Bonds and Money Market accounts. By liquidating some of this dead money and leveraging it into a tax‐free death benefit, these clients could leave their heirs with a much larger windfall.
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Charitably inclined clients may opt to donate appreciated securities vs. cash to charities to avoid the 23.8% Cap Gains rates. The client may wish to use cash instead to purchase life insurance as a wealth replacement vehicle for the donated assets and use the new charitablededuction to help offset the cost of the life insurance.
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The increased tax rates may increase the popularity of non‐qualified deferred comp plans. Deferring income for high wage earners until retirement when their incomes are less may prove to be advantageous. Permanent life insurance will remain a prevalent choice to informally fund such arrangements.
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Estates under $5M may still have death taxes. Several states have their own estate and inheritance taxes with much lower exemption limits. Combine this with the potential probate costs and many clients may still find the need for estate liquidity offered by life insurance.
10. Great hedge against future taxation.
9. Fund during peak earning years before retirement and be done.
8. It can never go down in value. Once dividend is paid, it cannot be taken away unlike the stock market.
7. It helps solve the asset allocation/protection problem.
6. High rate of return as a taxable equivalent yield.
5. Protects from disability during the critical working/earning years of the accumulation phase.
4. Can serve as your emergency reserves.
3. Leaves clients without “Buyer’s Remorse.”
2. At mortality even after a lifetime of income, it provides your spouse/loved ones a tax free death benefit which replaces the initial investment.
1. It is a permission slip to spend down all other assets.
