It’s a myth that as your wealth increases, the need for insurance decreases.
The fact is the more you have, the more you have to lose.
Wealth can insulate you against many of life’s uncertainties, but insurance can do so much more than protect you from risk. It can play a crucial role in minimizing your taxes, maintaining your lifestyle, and preserving your legacy.
Here are 10 ways insurance can protect and enhance your wealth:
- To cover terminal tax liability: You want to leave your cabin to your kids, but you do not want them to sell it just to pay the tax. Life insurance can help cover these tax obligations so that your beneficiaries can receive their inheritance without a big tax bill.
- To minimize taxes during your lifetime: Insurance products typically offer tax-deferred growth on the cash value. This means that the value of the policy can grow without being subject to annual income tax.
- For transferring wealth to the next generation: When you pass away, the death benefit from your life insurance policy is typically tax-free for beneficiaries, which allows them to receive the full value of the policy without deductions.
- For estate equalization: Life insurance can help you fairly divide your estate amongst your beneficiaries. For example, if only one of your children is interested in taking over the family business, you can use funds from your insurance policy to provide an equivalent inheritance to your other children.
- To maximize charitable donations: Designating a charitable organization as your insurance beneficiary enables you to support the causes you care about without affecting your current financial situation. And don’t forget about the tax deduction.
- For business continuity: Life insurance can be a valuable tool when succession planning for your business. For example, it can provide the funding needed for a buy-sell agreement, allowing surviving business owners to purchase the deceased owner’s share. This ensures the smooth transfer of ownership and avoids potential disputes or disruption to the business.
- As an investment alternative: When people think of investments, they traditionally think of stocks and bonds. However, treating insurance as an alternative asset class can help you diversify your portfolio, preserve your capital, and add a layer of financial security and tax-advantaged growth.
- To provide access to liquidity: Insurance can allow you to tap into the cash value of your policy through loans or withdrawals. These funds can be used to cover unexpected expenses, supplement retirement income, or provide a financial safety net during economic downturns.
- To maximize estate value: Life insurance provides a direct, efficient, and tax-free payout to your beneficiaries upon your death. Unlike other assets, insurance proceeds can bypass the probate process, saving time and money. Additionally, life insurance policies are often protected from creditors, shielding the proceeds from potential claims or debts against the deceased policyholder’s estate.
- To capitalize on the Capital Dividend Account (CDA): Insurance can provide a tax-efficient way to distribute corporate earnings to shareholders. When a corporation receives a death benefit, the proceeds can then be credited to the CDA, which allows for tax-free dividends to be paid out to shareholders.
If you are interested in learning more about how insurance can help maximize your family’s wealth, reach out to us at pkag.ca.
This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change. CIBC and CIBC World Markets Inc., their affiliates, directors, officers and employees may buy, sell, or hold a position in securities of a company mentioned herein, its affiliates or subsidiaries, and may also perform financial advisory services, investment banking or other services for, or have lending or other credit relationships with the same. CIBC World Markets Inc. and its representatives will receive sales commissions and/or a spread between bid and ask prices if you purchase, sell or hold the securities referred to above. © CIBC World Markets Inc. 2023.
