Article 5
How Company / Corporate-Owned Life Insurance Benefits Estate Planning
Company-owned life insurance policies can be used as a tool to increase estate values as part of a broader planning strategy. One way to do this is through Immediate Financing Arrangements (IFAs), which are widely used by business owners.
A dentist who became a multi-clinic owner purchased a permanent life insurance policy owned by his corporation to create part of an estate for his wife and children. The doctor and his wife intended to use the annual loan proceeds to fund the mortgage payments on a multi-unit commercial investment property, which required an investment of $1,200,000, which was more than the total value of the cash surrender value (CSV) at the time. Fortunately, the wife, who is a dental hygienist, also owned a permanent life insurance policy with a significant CSV. They were able to assign both policies as collateral security, allowing them to receive 100% funding for the mortgage payments.
By using the policies as collateral instead of a withdrawal from the cash value, their current cash values continue to grow risk-free inside of the policy while their new asset also grows in the estate. This strategy allows them to enjoy tax benefits and increase their estate values.
In conclusion, IFAs are a cost-effective way to preserve wealth and can be an ideal solution if you have been turned off by the idea of paying monthly premiums for life insurance and favour using your money for business purposes. It’s an efficient mechanism that can improve cash flow, provide access to cash, and carry tax-free benefits for your family and other heirs. It is important to note that leveraging arrangements are generally flexible enough to permit clients to react to any changes, but this issue requires a thorough review by a professional.
The potential for changes in tax and lending practices could limit the ability to receive tax-free loan advances in the future. Leveraging isn’t for everyone and may not be the best option for you. If you are considering an IFA, you will have to qualify for this program through an insurance medical and financial underwriting.
At CRM Financial, we understand that every client’s needs are unique. That’s why we offer customized life insurance solutions tailored to your specific needs and goals. Our ultimate goal is to help you protect your wealth and legacy while providing you with peace of mind.
Contact us today to learn more about our life insurance solutions and how we can help you achieve your financial goals. Let’s work together to secure your financial future.
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