Life insurance can be one of the most effective solutions to to secure and enhance your family legacy.
How Life Insurance Can Generate Meaningful Results
SECURITY. A tool to cover the outstanding debt obligation in case of premature death, delivering a designated amount of money to your beneficiary when it is needed most.
LIQUIDITY. Provides immediate cash to pay taxes, administrative costs, debts, and other claims against your estate without having to sell real estate, family heirlooms, artwork, or other assets during a down market.
LEVERAGE. Through gifting, the premium to the irrevocable life insurance trust enables you to leverage your annual exclusion gifts into a gift and estate tax free death benefit.*
CERTAINTY. An asset that is safe from creditors.**
ASSURANCE. A source of money for unexpected emergencies.***
Scenario 1: High liquidity (with or without life insurance).
If the insurance policy pays out in a time of high liquidity, the liquid portion of your assets may well cover estate taxes, administrative costs, claims, and other costs. In this case, the benefits from your insurance premium (not shown in the figure above) would simply add on to the assets you leave behind and distribute among beneficiaries, and illiquid assets like real estate, heirlooms, artworks, etc., need not be liquidated.
Scenario 2: Low liquidity (without life insurance).
If the insurance policy pays out in a time of low liquidity (e.g., when the stock market is down), the liquid portion of your assets may not cover these same costs. In this case, illiquid assets like real estate, heirlooms, artworks, etc., will need to be sold off to attain enough liquidity to settle your estate, and fewer assets will remain to distribute to your beneficiaries.
Scenario 3: Low liquidity (with life insurance).
If the insurance policy pays out in a time of low liquidity but you have allocated a modest portion of your funds to life insurance, then the benefits paid out by the insurance will help make up the difference between your liquid funds and the cash needed to pay off the costs of estate taxes, etc., and will increase the assets left for distribution to beneficiaries.
Liquidity will change throughout your life with the economy and markets.
Allocating a small portion of your assets to life insurances premiums over a fixed period (shown here as one single payment a year for ten years) adds a buffers that can help offset the difference between your liquid funds and the full cost of estate taxes, etc., when liquidity is low. The insurance benefit will boost the assets available to your beneficiaries in times of both low and high liquidity. Note that this figure is not to scale and assumes that illiquid assets remain constant (except when they must be liquidated to offset low liquidity to pay estate taxes) and liquid assets fluctuate.
* Neither Legacy Resources Insurance Services, Inc., nor its agents, provide tax, legal, or accounting advice. Please consult your tax, legal, or accounting professional before making any decisions.
** Rules vary according to state and ownership.
*** Accessing the cash value via policy loans will reduce the death benefit and the cash value by the amount of the outstanding loan and loan interest.