Using Life Insurance to Fund a Tax Deferred Asset

Many of my clients utilize a tax deferred structure for tax planning and wealth management purposes (attorney fees, real estate, incomplete 1031 Exchange, business sale, etc.) While an excellent product and wealth building strategy, it does require future considerations for the impending tax bill. This is where a well crafted life insurance policy, designed to your specifications, can be a great addition to your portfolio. It provides a security net of capital for when the tax bill is due in addition to a powerful long term tax deferred investment with inexpensive liquidity options.

Here are a number of the most important considerations:

- Cash surrender value is always available via a loan (typically less than 1% net annual interest rate) so you can access cost effective capital without taxation.

- Life insurance provides tax deferred growth, tax free dividends, cash withdrawals FIFO (first in, first out meaning your existing basis is reduced first and NOT your taxable gain).

- Flexibility to choose the risk tolerance of the portfolio.

- If something should happen to you, the death benefit is immediately available to hypothetically fund the tax implication and possibly have additional funds for their needs*.

- If nothing happens to you, and you have other capital to pay the taxes when they are due, you have a flexible investment that can used for retirement, estate planning, etc.

A properly designed life insurance policy can be a wise and protective partner to an existing tax deferred product.

Chris Princis

*As with any investment there are no guarantees of returns. Always conduct your own due diligence given your own scenario.