Why would a family need Life Insurance?
Long term financial and succession planning with life insurance has been strategic to protect and perpetuate wealth since the 1800’s.
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Wealth and succession planning are essential to every family. Depending on family’s dynamics and financial or entrepreneurial asset allocation, liquidity or maintaining the wealth could be a daunting challenge. Life insurance is a key component in honing this challenge, making it strategically important for all families to include it in their plans sooner rather than later. If one already has life insurance, it is important to review the existing policies and assure that they are still adequate and sustainable.
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Why is life insurance a key component to wealth and succession planning?
Income replacement
What would happen to your family if the main breadwinner was unexpectedly gone? Life insurance can replace lost income due to a sudden death in the family, ensuring the financial needs and lifestyle are maintained. Insurance is a guaranteed payment that could provide for paying home or other debts, childcare, health care, college expenses and any other financial need to maintain the family´s quality of life.
Estate Equalization
Life Insurance can generate the liquidity necessary to equalize the inheritance between the heirs. Managed assets or business can be passed on to those qualified to manage them assuring their continuity. Those not involved could be better off inheriting liquid assets in a Trust. This strategy can avoid tension between heirs and protects managed assets or business from the risk of being miss managed or being sold off to competitors or third parties.
Legacy Succession Planning
Life insurance in multiple members of the family can generate a perpetual cascade of wealth assuring multiple generations to come that adequate resources are available for their care, education, and wellbeing. This long-term strategy guarantees a legacy inflow of wealth in the family Trust while controlling how much will be distributed and under what terms. This method is used by several families to achieve perpetual wealth for all generations to come. This safety net also allows entrepreneurial families to take more risk in their investments providing more opportunity for further wealth creation.
Philanthropy
Similar to other legacy planning, affluent families can use life insurance to assure one´s charitable commitments continue in time. Providing enough liquid assets can help ensure your philanthropic goals are met throughout multiple generations, and that long-term support is provided to the charity of choice.
Inheritance or Estate Tax
Life insurance provides immediate liquidity to cover estate tax, ensuring that the family’s assets can be transferred without having to sell or liquidate them hastily to honor such commitment. This strategy provides peace of mind that the wealth and family legacy created will not be seriously affected by having to pay taxes when the heirs do not have the liquidity available to do so.
Debt
A sudden death in the family can have a serious impact of a family’s ability to honor debt obligations. This could bare a dire stress on one´s heirs in in the worst of times. Having adequate life insurance can provide the protection necessary to cover the debt or buy some time for the family to organize it´s finances. Life insurance guarantees liquidity that can protect the family from having to liquidate assets under pressure.
New Asset Class
Life Insurance is a unique asset class that provides strategic diversification as a complement to current investments and could be purchased under an existing trust or structure. Sophisticated investors attribute multiple benefits to this strategy such as: creating a tax preferred cash source for use in life, a highly liquid hedge for down markets, tax efficient wealth transfer for legacy planning and a tax deferred growth with health returns.
Buy Sell Funding
For family owned or a partnership held business, life insurance can fund a buy-sell agreement, allowing the surviving family members or business partners to buy the deceased owner’s share at a pre-arranged price in life while maintaining continuity and financial stability for the enterprise. This also reduces the risk of heirs that are not a fit with the team nor involved in the business from inheriting a significant interest that could be sold to a competitor or third party.
Key Person Insurance
This is a special type of life insurance that a company buys to mitigate or compensate for the financial losses that could arise due to the unexpected loss of one or several key persons. These executives are usually difficult to replace, and their absence could have a significant impact on important business relationships, sales or strategic contracts. Life insurance can provide sufficient liquidity to plan and execute the changes needed without financial pressure. This also reduces the risk for investors when betting on a business venture highly dependent on one key person, such as the founder.
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Everest Financial Planning LLC is a U.S. based, licensed and independent life insurance agency serving families locally and globally.
We only work with the highest rated insurance companies and have the partnerships to provide solutions for affluent families living all over the world.
We operate globally and have presence in the United States, Chile, Colombia, Ecuador, Mexico and Peru.