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:
“The facts of a person’s life will, like murder, come out.”
—Norman Sherry (b. 1925)
“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)
“There is nothing more poetic and terrible than the skyscrapers’ battle with the heavens that cover them. Snow, rain, and mist highlight, drench, or conceal the vast towers, but those towers, hostile to mystery and blind to any sort of play, shear off the rain’s tresses and shine their three thousand swords through the soft swan of the fog.”
—Federico García Lorca (1898–1936)
“We live in an age when to be young and to be indifferent can be no longer synonymous. We must prepare for the coming hour. The claims of the Future are represented by suffering millions; and the Youth of a Nation are the trustees of Posterity.”
—Benjamin Disraeli (1804–1881)
“Note, besides, that it is no more immoral to directly rob citizens than to slip indirect taxes into the price of goods that they cannot do without.”
—Albert Camus (1913–1960)