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Strategic Positioning Means Life Insurance Works for You While You're Alive

Strategic Positioning Means Life Insurance Works for You While You're Alive
(Curt Ziegler/Dreamstime)

By Friday, 31 March 2017 11:29 AM Current | Bio | Archive

Arthur L. Bernstein contributed to this article. 

Even Billionaires need insurance policies (40 billionaires claim dual residency here in South Florida, according to the 2016 Forbes’ World’s Billionaires list) to protect their vast assets, massive homes, golf courses, businesses and huge liquidity needs.

The record for the largest insurance policy ever purchased was for $201 million dollars, bought by an unnamed Silicon Valley billionaire and confirmed by the Guinness Book of Records. The amount of the policy necessitated it being underwritten by 19 different insurers.

It may be puzzling why an uberwealthy individual would buy a life insurance policy of that size. Wouldn’t his or her heirs have enough money? We understand the strategy since we sold the first $100 million plus life insurance policy in the state of Florida over a decade ago. It’s simple - estate planning and taxes.

Many wealthy individuals have been securing loans, which are not taxable, to take advantage of low interest rates before they rise any further. These loans are due immediately to be repaid in full upon the borrower’s death.

An untimely death can force the purchaser’s estate to liquidate assets at an inopportune time to raise enough money to pay off leveraged loans, business expenses and other debts including income and estate taxes. Federal taxes alone may eat up to 45 percent of an heir’s inheritance.

Also, most wealthy individuals have their estates tied up in hard assets and may not necessarily have the cash immediately available to pay for such a large amount due to be paid out. Life insurance can provide the money to pay off the obligations rather than liquidating more valuable growth and income-producing assets as well as cash.

Frequently when talking about the benefits of life insurance for entrepreneurs and businesses, we share the stories of famous brands started or saved by life insurance.

James Cash Penney, the founder of retail giant J.C. Penney, kept his company afloat when the Great Depression left his company in financial ruin by borrowing against his cash value life insurance policies.

Entrepreneur Ray Kroc, founder of McDonald’s, borrowed money from two of his cash value life insurance policies to help overcome cash flow problems, to pay his employees and to start his Ronald McDonald advertising campaign.

In addition, earnings from a life insurance purchase provide tax benefits that don’t come with a traditional investment. The savings and earnings in these policies grow tax-deferred, while loans like the one Penney took out on his policy are not taxed as traditional income.

If it is structured properly, it becomes a spread loan and you become your own bank.

A death benefit when paid out, will go to your beneficiaries’ income tax free and if set up properly, estate-tax free.

Would you rather leave your hard earned money to the government or to your heirs? If the policy is purchased at the right time, there is also the possibility the policy is creditor resistant or creditor proof.

Richard S. Bernstein, CEO of Richard S. Bernstein & Associates, Inc., West Palm Beach, is an insurance advisor for high net worth business leaders, families, businesses, municipalities, and charitable organizations. An insurance advisor to many of America’s wealthiest families, he is a writer, trusted local and national media resource and expert speaker on estate planning and health insurance. Visit his website at www.rbernstein.com. To read more of his reports — Click Here Now

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Even Billionaires need insurance policies to protect their vast assets, massive homes, golf courses, businesses and huge liquidity needs.
forbes, jc penney
Friday, 31 March 2017 11:29 AM
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