There are times when life insurance can play an important role in helping to manage the legacy plans of an individual or family. A common use of life insurance is to provide liquidity at the time of estate settlement. It helps protect the interests of family members and business owners when dealing with an estate that surpasses the lifetime exemption. That exemption equals $5,600,000 for an individual in 2018, or potentially double that for a married couple. The exemption amount is indexed annually for inflation. If you determine that insurance can serve a critical purpose in preserving your legacy or business planning objectives, it is important to make sure you have the appropriate coverage.
Once the type, amount and structure of coverage are determined, the next question is how to pay for it. Cash may be available to pay for premiums, but you may want to avoid reducing available cash reserves. Selling existing portfolio positions to fund the policy is another option, but this approach is not always desirable. Certain assets aren't easily liquidated and even when they are, doing so may have tax implications. Reducing holdings to free up cash may also eliminate the opportunity to potentially generate additional returns from the assets that were sold, or in the case of a business, may have an impact on its balance sheet.
An alternative approach is to consider the potential advantages of financing life insurance premiums. This involves leveraging your existing assets rather than liquidating them. It may make the purchase of life insurance coverage more accessible for you if your assets are not readily liquid or if you prefer to retain those assets. The ability to purchase life insurance may allow you to take the steps that are necessary to potentially protect your estate, your family and other beneficiaries.
A common use of life insurance is to provide liquidity at the time of estate settlement.
Financing for premiums