Life Insurance can be integrated into a host of financial planning solutions for families, farms and small businesses. Below are few of the many planning issues where life insurance can provide a cost effective fix.
Protecting Dependents: The most common use of life insurance is to protect one’s dependents. When a person dies prematurely, his or her dependents not only have to deal with the loss of the loved one, but also with the loss of that person’s income earning ability. The tax-free, lump-sum payment that a life insurance policy provides can replace the deceased person’s earnings, pay debts and other liabilities, plus cover daily living expenses and future education costs.
Estate Preservation or Equalization: Another use of life insurance proceeds is to pay debts, tax liabilities and other estate costs so the assets of the estate don’t have to be eroded or borrowed against to cover these expenses. For example, when one sibling takes over a farm or business, life insurance can be an effective way to compensate siblings who are not involved in the business.
Capital Gains Taxes: Life insurance can provide funding to pay the capital gains tax liability that your estate owes on your passing.
Registered Plans and Tax Liabilities: When you pass away, any registered funds you own create a tax liability for your estate. Life insurance offers an effective way to offset that liability.
Estate Taxes: Your estate may be liable for estate taxes on property you own in other jurisdictions such as the USA when you die.
Probate and Estate Costs: Life insurance can provide the funding to cover probate fees and other estate costs. These could include funeral and burial expenses, estate administration costs such as executor’s fees, evaluator fees, legal and accounting fees.
Building and Preserving an Estate: As we all know, it’s not easy to accumulate money, and it’s even harder to amass significant funds to leave behind. Because exempt life insurance proceeds are paid tax-free to the beneficiary, it can be an efficient way to create an estate and transfer wealth to later generations.
Creditor Protection: Some people are interested in protecting their assets from the claims of creditors. Life insurance may offer this protection, depending on respective provincial laws and how the policy was set up.
Withdrawals, Policy Loans and Leveraging: Once significant cash has accumulated within a policy it may be accessed directly through a cash withdrawal or policy loan. These transactions would be considered dispositions of the policy and are potentially subject to taxation. However, leveraging allows a policy owner to access some of the value of the policy without triggering taxes. It involves creating an income stream by using the life insurance policy as collateral security for a loan.
Collateral Insurance: Life Insurance can also help you get qualify for a loan from a lending institution, as lenders will often require a life insurance policy be pledged as collateral security for a loan.
Inter-generational Wealth Transfer: A life insurance policy can serve as a vehicle to transfer accumulated wealth to succeeding generations while you’re still alive. This is possible because, under specific conditions, ownership of a life insurance policy can be transferred without triggering tax consequences.
Are you intrigued by these possibilities? If you see a fit for life insurance for your family, farm or small business need, seek out a trusted professional and explore the options.
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