In 2021, many financial advisors and estate planners are recommending a new way to pass down generational wealth—and it might not be what you expect. It’s life insurance, but here’s the catch: you’d have to die to actually pass it on.
In 2021, many financial advisors and estate planners are recommending a new way to pass down generational wealth—and it might not be what you expect. It’s life insurance, but here’s the catch: you’d have to die to actually pass it on.
Life insurance has always been an important part of any family’s financial planning, as it can help cover things like debts, mortgages, funerals, and day to day living expenses if a breadwinner were to pass away. While all of that is still true, some financial experts are now recommending life insurance not just as a way to ensure basic needs are taken care of, but as a way to pass down generational wealth.
Traditional term-life policies can range from coverage for $50,000 to $3 million or even $10 million in some cases. In layman terms, if you were to die while your life insurance policy is active, your family could potentially become millionaires overnight.
You’re probably wondering, could it really be that easy to pass down generational wealth by paying for life insurance on a monthly basis? The answer is yes (other than the whole dying portion of it all.) However, that huge one-time payout does have its cons as many of those who have never had access to large quantities of money before, pose the risk of misspending or mismanaging it within the first couple of years.
So, looking at the big picture, here are two choices: you can either apply for the get-rich-quick type of life insurance with a huge one-time payday, or you could look into life insurance that would give your family a lasting stream of income like the new modern-day life insurance company, Dayforward, does. We suggest the latter, plus Dayforward wanted to note a few ways life insurance can affect your taxes (although neither Dayforward nor Bezinga is providing tax advice).
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Generally, life insurance payouts aren’t taxable, making them an attractive alternative for those looking to leave their family money.
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If you invest a life insurance payout and that money earns dividends, it’s important to know that amount will be taxable, so keep that in mind when planning investments.
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To calculate the right amount, you’ll need to consider if you have any debts, educational expenses, house payments, living expenses, and funeral expenses that will need to be accounted for first.
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Conventional life insurance offers lump sum payments, which will likely need to be invested and will generate higher taxable interest than smaller payouts that you receive over time. (Dayforward offers Income Protection, through which your family will continue to receive your twice-monthly paychecks if you pass away. That way, you’ll only have to deal with a small amount of interest on your twice-monthly income benefit payments, rather than higher taxable interest that can come with a large lump sum).
In conclusion, life insurance can in fact help you pass down generational wealth for your family, as long as your death is while your policy is active. Who would’ve thunk?
President Biden May Raise Taxes Capital Gains, But Some Financial Advisors May Have A Surprisingly Simple Solution
In 2021, many financial advisors and estate planners are recommending a new way to pass down generational wealth—and it might not be what you expect.
No matter what side of the political aisle you’re on, taxes have always been a hot button issue. Capital gains taxes are one of the most controversial financial issues in politics, and with new proposals in the works to raise them, the stakes are only getting higher. President Biden is aiming to raise inheritance taxes to 39.6% (almost double the previous rate) for individuals earning more than $1 million in annual income. The new proposal would treat inherited property more like a sale, thus making the so-called “death tax” a major issue for estate planners and those who intend to pass down wealth to their family after they pass away.
While pundits are busy talking about loopholes and laws, the solution for those looking to make the most of their inheritance might be more simple: life insurance.
Life insurance has always been an important part of any family’s financial planning, as it can help cover things like debts, mortgages, funerals, and day to day living expenses if a breadwinner were to pass away. While all of that is still true, some financial experts are now recommending life insurance not just as a way to ensure basic needs are taken care of, but as a way to pass down generational wealth.
Dayfoward, a new life insurance company that provides smarter coverage at a great price, has provided a few important things to keep in mind about how life insurance can affect your taxes:
-
Generally, life insurance payouts aren’t taxable, making them an attractive alternative for those looking to leave their family money.
-
If you invest a life insurance payout and that money earns dividends, it’s important to know that amount will be taxable, so keep that in mind when planning investments.
-
To calculate the right amount, you’ll need to consider if you have any debts, educational expenses, house payments, living expenses, and funeral expenses that will need to be accounted for first.
-
Conventional life insurance offers lump sum payments, which will likely need to be invested and will generate higher taxable interest than smaller payouts that you receive over time. (Dayforward offers Income Protection, through which your family will continue to receive your twice-monthly paychecks if you pass away. That way, you’ll only have to deal with a small amount of interest on your twice-monthly income, rather than higher taxable interest that can come with a large lump sum).
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