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This video explains how life insurance works as an investment. Video explain how life insurance company invest from the money we invest in insurance.

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Is Life Insurance A Good Way To Invest Your Money

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Life insurance is also an investment. The investment opportunities of life insurance is displayed in the website.
1.Life insurance as an investment in estate planning
2.Life insurance as an investment in retirement planning.

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At a meeting of financial advisors, I was recently asked, "do you actually think life insurance is an investment?" My inquisitor was making more of a statement than asking a question, so she was surprised by my answer: "I can tell you that life insurance was an investment for me; one that I'm benefiting from now."

I explained to her that about 20 years ago, I started paying annual premiums into a whole life policy that was designed to have low loads and high cash values. Each March, right after receiving my annual bonus from work, I'd faithfully write a premium check to the insurance company. Nothing much happened with my policy during those 20 years other than the cash value account in the policy grew tax deferred.

Fast forward to last year when my family was grown, and I had transitioned from working in industry to working in academia. In other words, I didn't need the death benefit anymore, and my taxes were lower. I made a tax-free exchange of my policy into an immediate payout annuity. Now my wife and I receive a monthly guaranteed amount that will pay us until the last of us die. And the taxes on the cash values that I experienced over the past 20 years are being prorated over our life expectancy. Keep in mind that I could have died during my pre-retirement years, and my wife would have received a substantial tax-free death benefit. But I didn't die, and yet I made an approximate 6% after-tax internal rate of return on my premiums.
Life insurance as an investment in estate planning
To be clear, the vast majority of life insurance is purchased for risk management. The death benefit is a hedge that provides cash in the event of an unexpected death. It's intended to pay off debt, provide a survivor income or otherwise generate liquidity for a premature death. Even in my case, I still own other life insurance policies intended to provide a death benefit.

But life insurance, largely because of its tax benefits, can also be used as an investment. And it's not just because of the cash value associated with permanent insurance. Consider how the death benefit of a policy can generate millions in tax savings for a wealthy family. Rich families often use dynasty trusts to move their millions down through the generations. In this case, the family is the investor, not the individual. The challenge for these family dynasties are the three federal transfer taxes that charge a flat 40% rate on transfers: the gift, estate and generation skipping transfer taxes (GST). While these taxes can quickly deplete a wealthy estate, current law allows an exemption of $11.4 million before they apply. So, Generation 1 can set up a trust that uses $11.4 million to skip a generation, landing the wealth in the hands of Generation 3, transfer tax-free. Generation 2 doesn't suffer for wealth because they live off the income in the trust. The question is what investment to use to maximize the efficiency of the $11.4 million exemption in moving money through the generations.

A popular solution in GST tax exemption planning is life insurance. This product has the advantage of paying exactly when needed, i.e. at the insured's death, and it pays a benefit that is income tax-free. Let's take an extreme example to demonstrate the leverage. A wealthy individual, Gen 1, uses her entire $11.4 million generation-skipping tax exemption to pay a one-time premium for life insurance. Assume the policy's death benefit is $25 million and it resides in a dynasty trust. The trust is structured so that after Gen 1's death, it collects the insurance proceeds income tax-free, and begins paying interest income to her children, Gen 2. The $25 million principal in the trust will eventually go to the grandchildren, Gen 3, after Gen 2's death. Life insurance has maximized the leverage of this transaction. When Gen 1 died, the trust received $25 million income tax-free, and neither Gen 1 nor Gen 2 pay gift, estate or GST taxes on the death benefit. In the end, Gen 3 has $25 million in trust and the dynasty continues. Even accounting for inflation, the family experiences little, if any, diminution in the value of their wealth through three generations.

An added consideration is that the federal exemption is slated to return to a lower amount starting in 2026. This means that the exemption will revert to an inflation adjusted $5 million. So, the family that utilizes life insurance as an investment currently has the added advantage of leveraging the high exemption while it is available. The IRS has indicated it will not "claw back" this high exemption once it has been used. So, leveraging the exemption is a matter of "use it or lose it."
Life insurance as an investment in retirement planning
The example I used above of my own policy is more typical of how life insurance can be used as an investment. In essence, I utilized the policy as a way to tax-efficiently supplement our monthly income. The policy first deferred taxes during my high-income earning years, and now spreads both the income and the income tax out over my lower earning years.

There are other ways to structure cash value life insurance to help supplement retirement income planning. It should be emphasized, however, that in all cases the insurance is first and foremost a means of providing a death benefit. Section 7702 of the U.S. Internal Revenue Code requires insurers to maintain a sufficient risk element in the policy to qualify the product as life insurance under the tax code. So, while the policy is in force, a death benefit is always in play.

That said, a popular life insurance retirement planning strategy involves directing as much premium as possible into cash value with the least amount allocated to the death benefit. This typically requires fiddling with two death benefit types and two premium tests - a function best handled by the insurance advisor or the insurance company. The idea is to structure ongoing premiums into the life insurance policy during one's working years so as to stuff the product with tax deferred cash value. Then, at retirement, the policy turns into a source of income more than death benefit. Accumulation and risk protection during the working years switches to decumulation and retirement income.

Here's how it works (using a Universal Life insurance policy as an example): first, at retirement, the owner stops paying premiums, thereby adding to cash flow. Next, working with the in-force cash values in the policy, the retiree determines an ongoing level income to take from the policy. The original source of that income is the owner's tax basis in the contract. Life insurance has the advantage of first-in-first-out (FIFO) tax treatment, so the income coming out of the policy is initially treated as a return of premiums. Once the tax basis has been exhausted, the owner switches to making capitalized loans from the policy. In other words, the loan would be for the desired income plus the interest required for the loan itself. Since this income is a loan, no tax applies. The primary caution of this retirement income strategy is to not take out so much cash value as to have the policy lapse. If the insurance policy runs out of money, the owner incurs income tax without any corresponding cash to pay the tax.

This may all sound like a witches' brew and more trouble than it's worth. But some life insurance companies have become adept at making the process surprisingly easy. One noted company automates the entire income process so that the checks come monthly; the company knows when to switch from withdrawals of basis to loans, and then, when the values start to run out, the policy is essentially collapsed into a contract that won't lapse. As far as the owner is concerned, he gets a level tax-free monthly income for several years in retirement. Conceptually, the transaction works like a Roth IRA. You use after tax dollars to accumulate a fund that pays out tax-free.

Financial professionals can, and do, argue over the merits of life insurance as an investment. Accusations occur over high loads, poor administration and unrealistic illustrations. Like any investment, the results of the transactions are highly dependent on the performance of the company that handles the contract. But it is hard to disagree with the tax advantages possible with life insurance as an investment. Simply put, it builds up cash values tax deferred and can pay them out tax free.
So, back to answering my inquisitor at the meeting. Yes, in the right situation and used correctly, life insurance can be considered an investment.
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I was recently asked, "do you actually think life insurance is an investment?" My inquisitor was making more of a statement than asking a question, so she was surprised by my answer: "I can tell you that life insurance was an investment for me; one that I'm benefiting from now."

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The website shows the Benefits of life insurance.

1.We can replace your income so your family can maintain their standard of living.
2.We can provide for your children or dependents.
3.We can pay for funeral expenses.
4.We can pay off your debts.
5.We make a gift to charity.

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No financial plan can be considered complete without an insurance review. Life and disability insurance are important in planning for contingencies, providing for dependants and ensuring your financial goals will be achieved.

Life insurance can fulfill many needs. One of the primary needs is to protect the financial well-being of your survivors by maintaining their current lifestyle in the event of your death. Life insurance provides a tax-free lump-sum death benefit, which can be invested to provide income for a spouse or dependent children. Portions of a death benefit can be used to pay off debts and eliminate the need for survivors to continue to meet repayment schedules.

Death may create income tax liabilities for a deceased's estate. For example, capital property is treated as if it were sold for fair market value at the time, unless transferred to a spouse. This will trigger taxation on any capital gains if the assets have appreciated in value. In addition, the values of certain registered assets, such as RRSPs and RRIFs, are included in the deceased's income in the year of death unless a spouse or dependent child is named as beneficiary. This taxation burden can lead to a liquidity problem for the estate, especially if the children want to hold onto an asset, such as a cottage.

A life insurance policy can offer unique advantages. If a family-class beneficiary - such as a spouse or child - is designated as the beneficiary of the life insurance proceeds, the policy may be exempt from seizure by the creditors of the policy owner or life-insured.

The death benefit payable to a named beneficiary under a life insurance policy does not form part of the estate of the life insured. Therefore, the life insurance proceeds are not subject to estate shrinkage costs, such as probate, legal and executor's fees, and creditor claims. In addition, life insurance proceeds payable to a named beneficiary will flow directly to that beneficiary without the usual delay involved in the settling of an estate.

In order to determine the amount of insurance you require, a full needs analysis should be completed by an insurance professional. A complete review will examine your current sources of income and living expenses to determine which will continue after your death. With the assistance of the insurance adviser, you will determine how much of your income should be replaced and the length of time to provide this replacement income to survivors. Your assets and liabilities should then be reviewed to determine which assets can be liquidated at death and which liabilities should be funded at death.

Final expenses should also be considered, including funeral costs, probate and legal fees. In addition, you should consider any goals you would like to fund, such as university education for any children or grandchildren.

To complete the needs analysis, several assumptions must be made. These include the rate of growth of assets, the inflation rate and long-term interest rates. If there is a shortfall between income required for dependants and the income available (from capital invested and the liquidation of investments and assets), insurance can be used to provide the capital required to close this gap. Insurance can also provide funds to close the gap between liabilities and life goals to be funded at death, and the assets available for this purpose.

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No financial plan can be considered complete without an insurance review. Life and disability insurance are important in planning for contingencies, providing for dependants and ensuring your financial goals will be achieved. Life insurance can fulfill many needs.

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This website shows 5 different types of life insurance.

Term Life Insurance.

Whole Life Insurance or Permanent Life Insurance.

Limited Pay Whole Life Insurance.

Universal Life Insurance.

Term to 100 Insurance.

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Conversion to permanent product possible?
Yes

Not required as already a permanent product

Not required as already a permanent product

Not required as already a permanent product

Does the death benefit change with time?
No

No, benefit is fixed for life

Yes, death benefit can increase with dividends received

Yes, death benefit can increase or may even reduce (if the mortality cost increases or the account value reduces)

Does it provide level (flat) premiums?
Yes, premiums are flat for initial term only; increase significantly thereafter

Yes, premiums are fixed for life

Yes, premiums are fixed

No fixed premium amount

Are modal factors applied to premium payment?
Yes - modal factor applied; annual premiums get a discount

Yes, modal factor applied; annual premiums get a discount

Yes -modal factor applied to non-annual premium payment; annual premiums get a discount

No

Do you get control over investments?
No investment component

No investment component

No, investments directed by the insurer

Yes, you choose from a range of investment options provided by the insurer

Can the policy lapse?
Yes, 30 days after premium due date

Yes, 30 days after premium due date

No, as long as cash values can continue to cover premium

No, as long as cash values can continue to cover premium

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5 Different Life Insurance Policies in Canada

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Conversion to permanent product possible? Yes Not required as already a permanent product Not required as already a permanent product Not required as already a permanent product Does the death benefit change with time?

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This is the website of Government of Canada which explains the different types of life insurances available in Canada. This site also explains legal side of life insurances in Canada. This website shows what is life insurance. The whole concept is explained here

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Term life insurance, permanent life insurance and how to name a beneficiary.

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1.What did you learn about the topic that most surprised you?

It was a surprise for us to know that insurance is  also an investment.

2.Provide a real-life example of how this topic is relevant or interesting for you?

Life insurance is important for an individual for the safety of their family or business. Life insurance is also an investment, So it can be used in the time of  retirement also.

3.If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?

The most important thing that I would pass on would be insurance is an investment and it can be used in the time of retirement.

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Video shows the concept of life insurance. In the video the presenter clearly explains term vs whole life insurance. He explains the advantages and disadvantages of both. By watching the video the viewer can easily understand the concept clearly.

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Term Vs. Whole Life Insurance (Life Insurance Explained)

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This video explains why Life Insurance products are a good fit in today's economic environment. He breaks down his top three reasons why Life Insurance is a must in these modern times.

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The Top Three Reasons You Must Have Life Insurance

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The video explains the different types of life insurance. The various types of insurance are:
1.Term life insurance
2.participating life insurance
3.universal life insurance
Video shows clearly about the different types of insurance.

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We choose this image as the image clearly shows safety that the life insurance provide to the family. Life insurance give a peace of mind to the individual whose life is insured.

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In this Padlet we are going to discuss how important is life insurance in our life and the advantages of taking a life insurance.

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This image shows the importance of life insurance. It also gives answer to most of the people's question why they invest in life insurance.