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How the Rich use Life Insurance | Wealth Creation | Redneck Success

Life Insurance Wealth Creation
Life Insurance Wealth Creation

I used to sell life insurance.  While selling life insurance I learned some very valuable lessons on how the rich use life insurance to reduce their taxes and pass on their wealth to their heirs.  In this post I will explain briefly how this is done.

Before you go trying to implement what I say, make sure you hire a solid CPA and life insurance agent to provide you with the most accurate advice.

When someone has life insurance and they die, the death benefit of that life insurance policy is passed down to the heirs tax free in the United States.  On top of that, the amount the policyholder paid into the policy is typically a fraction of the actual death benefit.  Because of these two scenarios, the rich, and you, can use life insurance to pay for the estate and probate taxes that will occur at the time of death.

For example, let’s say your estate is worth $1,000,000 and you wish to pass down the $1,000,000 to your heirs.   After talking to a CPA you determine that your tax bill on your estate will be $300,000 at the time of death, meaning your heirs will only receive $700,000.  To hedge your estate taxes you can buy a $300,000 policy for just a few hundred dollars a month (or less).  That way you make up for the gap in what is passed down to the heirs and what is taxed for a fraction of the cost.  This way you are essentially paying the taxes for your heirs at a fraction of the cost.

Due to the leverage you can gain with life insurance, typically whole life or universal life, you can leave your heirs plenty at time of death and still enjoy your retirement using your 401k and other savings.  When you go to choose a life insurance company, my recommendation is to choose a well established company, preferably a mutual life insurance company.  Some examples of mutual companies are Mutual of Omaha, New York Life, and Northwestern Mutual.