How to Use Permanent Life Insurance for Intergenerational Wealth Transfer
Permanent Life Insurance is arguably one of the most efficient tools for transferring wealth across generations. It provides a guaranteed, leveraged, and tax-advantaged mechanism for creating a legacy for children or grandchildren.
The Leverage Factor
Life insurance offers unique leverage. A parent can pay a modest annual premium for a Whole Life policy on their child (or grandchild). The total premiums paid over the policy’s life are typically far less than the final tax-free death benefit that the future generation will receive.
Tax Efficiency in Transfer
When structured correctly (e.g., owned by a trust or the recipient), the policy provides three tax benefits for the transfer:
- **Tax-Free Growth:** Cash value grows tax-deferred.
- **Tax-Free Access:** Cash value can be accessed tax-free via loans during the policyholder’s life.
- **Tax-Free Death Benefit:** The death benefit passes to beneficiaries income-tax-free.
The Strategy: Policy on a Child or Grandchild
Starting a permanent policy on a child or grandchild locks in the lowest possible premium rate for their entire lives, maximizing the cash value growth period and securing insurability for the future.
Disclaimer: This content is for informational purposes only and is not financial or legal advice. Intergenerational wealth transfer must be executed with the guidance of an estate planning attorney.