Life Insurance To Cover Future Taxes
In those jurisdictions where life insurance proceeds are only tax free at death, tax liabilities that come due at death are often offset by a policy of the same size. Since the mathematics required to compare different strategies is quite complex, most consumers defer to an accountant or life insurance agent for advice. However, there is often vast differences of opinion between these professionals, even given the same starting conditions. This should not be surprising, given the huge future differences that even small variances in starting conditions can make.
For example, assume that an individual is likely to owe $100,000.00 in taxes at death. If a permanent life insurance policy with a $100,000.00 death benefit costs $1,000 per year (remaining level for life), and the life expectancy of the person is 30 years, then the following events could occur.
- The individual could die early. In this case, it is unlikely that any alternative investment of the $1000 per year would have yielded the required $100,000.00 at death.
- The individual could live much longer than expected. The individual could have built up a significant cash value within the policy, depending on investment selection. As such, the individual would have access to these cash values tax-free regardless of growth, provided it is set up properly.
Since one normally does not know which of these will occur (see adverse selection) calculations must be based on expected life expectancies for people of similar gender, physical condition, and behaviour.
Read more about this topic: Life Insurance Tax Shelter
Famous quotes containing the words life, insurance, cover, future and/or taxes:
“There is a right according to which we may deprive a human being of his life but none according to which we may deprive him of his death: to do so is mere cruelty.”
—Friedrich Nietzsche (1844–1900)
“The Republican convention, an event with the intellectual content of a Guns’n’Roses lyric attended by every ofay insurance broker in America who owns a pair of white shoes.”
—P.J. (Patrick Jake)
“Nothing can we call our own but death,
And that small model of the barren earth
Which serves as paste and cover to our bones.”
—William Shakespeare (1564–1616)
“Such is the miraculous nature of the future of exiles: what is first uttered in the impotence of an overheated apartment becomes the fate of nations.”
—Salman Rushdie (b. 1948)
“The prairies were dust. Day after day, summer after summer, the scorching winds blew the dust and the sun was brassy in a yellow sky. Crop after crop failed. Again and again the barren land must be mortgaged for taxes and food and next year’s seed. The agony of hope ended when there was not harvest and no more credit, no money to pay interest and taxes; the banker took the land. Then the bank failed.”
—Rose Wilder Lane (1886–1968)