Really awesome analysis and writing, I would honestly love to read something like this every morning (as opposed to opinionated news sources)! Course I know that would be a ton of work haha. But yeah thanks man! Pretty ridiculous how expensive whole life insurance is, especially given the measly rate of return. I don’t see why anyone should buy it, because as you wrote permanent life insurance may make sense for people with large estates- but if they have large estates, wouldn’t they be able to be self insured?
Yes they would likely be self-insured at that point, but they aren't really using permanent life insurance as "insurance."
Here's an example...let's say Bill and Bonnie Smith die with $2 million in a taxable brokerage account that they leave to their children, and their overall estate size is $5 million. The estate tax exemption is $23.4 million for a married couple, so they don't have to worry about federal estate tax since they are well under the limit. Also, their heirs get a step-up in basis for the taxable brokerage assets if it is properly titled.
And here's a situation where permanent life insurance may be worth considering. Let's say Bill and Bonnie have $2 million they want to leave to their kids, but their estate size will be around $23.4 million when they retire (not including the $2 million). If they left that in a taxable account, it would be subject to federal estate tax which quickly increases to 40%. Life insurance proceeds are generally not included for estate tax purposes, so for them it may be worth considering using that money to purchase a life insurance policy since it could pass on to their heirs tax-free.
Oh I see, makes sense. 40% is certainly a lot to pony up to Uncle Sam. I had no idea life insurance policies could be used that way. That’s really interesting, thanks for the insight!
I think many people overlooks at life insurance, just because it is not mandatory, it doesn't mean its not necessary. We buy car/home/renters insurance all the time, but forgot what is most important, the financial piece of minds for loved ones when something terrible happens. Ultimately, the insurance is a way to transfer risk for people (majority) who can not self insured. It is such piece of mind for a small amount of money, don't overthink its wasted, insurance company won't lose money, the actual claim rate is probably under 2%. This is kind of insurance you wish never had a chance to use it
Thanks so much for explaining why a person would need to get life insurance. My brother has been looking to get life insurance since he started his new job. We've been looking into finding someone to help him choose the right policy for him. https://veteransassetplanning.com/life-settlement-program/
Really awesome analysis and writing, I would honestly love to read something like this every morning (as opposed to opinionated news sources)! Course I know that would be a ton of work haha. But yeah thanks man! Pretty ridiculous how expensive whole life insurance is, especially given the measly rate of return. I don’t see why anyone should buy it, because as you wrote permanent life insurance may make sense for people with large estates- but if they have large estates, wouldn’t they be able to be self insured?
Yes they would likely be self-insured at that point, but they aren't really using permanent life insurance as "insurance."
Here's an example...let's say Bill and Bonnie Smith die with $2 million in a taxable brokerage account that they leave to their children, and their overall estate size is $5 million. The estate tax exemption is $23.4 million for a married couple, so they don't have to worry about federal estate tax since they are well under the limit. Also, their heirs get a step-up in basis for the taxable brokerage assets if it is properly titled.
And here's a situation where permanent life insurance may be worth considering. Let's say Bill and Bonnie have $2 million they want to leave to their kids, but their estate size will be around $23.4 million when they retire (not including the $2 million). If they left that in a taxable account, it would be subject to federal estate tax which quickly increases to 40%. Life insurance proceeds are generally not included for estate tax purposes, so for them it may be worth considering using that money to purchase a life insurance policy since it could pass on to their heirs tax-free.
Oh I see, makes sense. 40% is certainly a lot to pony up to Uncle Sam. I had no idea life insurance policies could be used that way. That’s really interesting, thanks for the insight!
I think many people overlooks at life insurance, just because it is not mandatory, it doesn't mean its not necessary. We buy car/home/renters insurance all the time, but forgot what is most important, the financial piece of minds for loved ones when something terrible happens. Ultimately, the insurance is a way to transfer risk for people (majority) who can not self insured. It is such piece of mind for a small amount of money, don't overthink its wasted, insurance company won't lose money, the actual claim rate is probably under 2%. This is kind of insurance you wish never had a chance to use it
Thanks so much for explaining why a person would need to get life insurance. My brother has been looking to get life insurance since he started his new job. We've been looking into finding someone to help him choose the right policy for him. https://veteransassetplanning.com/life-settlement-program/