Should you own life insurance at all, or should you own much more? What kind?
That depends on what you want it to do for you. If you have too few assets, then it could supply assets for your family in the event you cannot stay alive long enough to earn out the value of your career.
If you have many assets, some of them may generate tax liabilities upon your death and many will not be liquid enough to help pay for those. Big sale discounts required to get the cash.
Maybe you have a bond portfolio to balance your investment holdings and resent the tax bill that accrues.
While no one I know loves the idea of owning life insurance, there are few beneficiaries who have been displeased by the resulting check. Executors like it even more because they need not sell hard to dispose of assets to meet immediate obligations.
Surprisingly, many people think life insurance is not a good deal for them. Even more surprisingly, their beliefs are not shared by people who actually know what they are doing. Here are some comments:
“The life insurance industry has developed attractive and highly sophisticated products that can help you achieve two objectives at once: Having insurance coverage and providing retirement income from tax sheltered growth.”KPMG, Accountants
“One added benefit of permanent insurance policies is that the investment component has a cash surrender value which can provide funds before death. You can borrow against or withdraw this cash surrender value to supplement your retirement income or for emergency situations – but there may be an associated tax cost. The fact that you can designate beneficiaries is another advantage of insurance policies over other types of investment. This protects the policy from creditors and excludes the proceeds from the estate’s value when calculating probate tax when there is a named beneficiary.” Ernst & Young, Accountants
“For many business owners, insurance provides the only real option for dealing with the income tax bill that will be payable at death, short of selling the business.” BDO Canada, Accountants
“Life insurance is an efficient way to transfer wealth to your heirs.” Malcolm Forbes, Forbes Magazine
All very dry and rational. They address the need for liquidity. Another easily overlooked aspect of life insurance is that it can be a tax-preferred investment vehicle for long holding periods.
“In the constant war between taxpayer and tax collector, life insurance has become an unexpected ally of the oppressed.” – Jonathan Chevreau, Financial Post.
“Other than being shot at and missed, nothing is better than a good tax return.” Woody Allen
People miss a huge opportunity because they have not examined the life insurance tactic more completely. Perhaps it is time for you to remedy that oversight.
Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: firstname.lastname@example.org