Have you saved up a nest egg, that you would like to share with your family? Perhaps have set aside funds earmarked to pass along to help with College to grandchildren.

So, how can you pass down these funds in a guaranteed, tax free and possibly increase the amount by 2x immediately?

 A perfect solution would be a Single Premium Life Insurance Policy, as it is ideal to shelter assets with an ultimate objective of transferring wealth, income tax free.

Single-premium life (SPL) is a type of insurance in which a lump sum of money is paid into the policy in return for a death benefit that is guaranteed until you die.

Benefit 1: Leverage

With life insurance, you pay a premium in exchange for what will likely be larger payout in the event of death. This leverage of premium dollars is intended to provide a “positive return” on outlays for the benefit of designated beneficiaries. The expected performance of a life insurance policy should be viewed in light of desired family wealth goals and can be a complement to other investments in a financial portfolio. Fees, taxes, and risks associated with any financial products should of course always be considered.

Example: Brian and Sofia have saved $2 million to provide them with income in retirement. They are comfortably budgeted but concerned about preserving a meaningful portion of their nest egg to provide for the education of their many grandchildren (a sum that could approach $1 million). If they include permanent life insurance in their budget, they can ensure that the money will be available to help pay for their grandchildren’s education and other family needs after they’ve died—regardless of their longevity. This may even provide them greater flexibility to spend in retirement and enjoy their golden years as they desire.

Benefit 2: Guarantees

Guarantees are key benefits of permanent life insurance. Depending on the type of insurance, guaranteed annual premiums and guaranteed death benefits can provide certainty regarding the availability and cost of coverage. And while life insurance is largely viewed as a commodity, guarantees are backed by the financial strength of the issuing carrier. For this reason, financial stability and reputation are important to consider when choosing a life insurance provider.

Benefit 3: Simplicity

Life insurance can offer tremendous simplicity in an otherwise complex and often confusing planning environment impacted by taxes, probate, and creditor risks:

Tax benefits

A life insurance death benefit is generally received free of any income tax by the beneficiary. Contrast this with the income tax on accumulated savings that would otherwise be left to heirs.

While life insurance proceeds are included in a taxable estate, the current federal estate tax exemptions ($12 million per person in 2022) effectively eliminate the vast majority of people from federal estate taxation. Note that some states impose a state level estate tax at lower thresholds, but trust arrangements can be employed to address this issue.

Probate avoidance

Life insurance proceeds are paid directly to the designated beneficiary of the policy, avoiding probate delays and additional legal expenses.

Funds are generally paid after a simple claim form is completed and the death certificate is presented.

Beneficiaries can be easily changed to reflect the insured’s changing wishes. Contrast this with the difficulty in updating and properly executing a codicil to a will or other estate planning document. 

Asset protection

Depending on state exemption laws, the death benefit received from an insurance policy may be exempt from potential creditor claims against the policyholder, and sometimes outstanding claims against the beneficiaries as well.

Where enhanced protection is desired for long-term wealth management, a trust established during one’s life or under one’s will, can likewise be named as a beneficiary of a policy.

Example: John and Carrie settle on a $500,000 whole life product they can comfortably afford. They designate their three children as equal beneficiaries of the policy, with the direction to them that funds are to be used for educational costs as needed. They like the idea that they can modify the beneficiary designation in the future and that all proceeds will be paid free of income taxes and also protected from their potential creditors, depending on their state.