PCA is a financial planning and private wealth management firm. We assist our families in many ways depending on their unique values and objectives. We are also an independent Insurance Broker for Life Insurance and Long-term Care Insurance. We work with many highly rated insurance companies to serve a wide variety of strategic planning needs and wants our families have.
Many of us have had an insurance claim at some point in our lives. The most common are Auto, Home, Health, or Dental insurance claims. Insurance of any kind is a tool used to mitigate financial loss due to various risks. If you don’t have insurance, then you pay for a loss with your own money. You may also choose to insure a portion of a potential loss and retain the remaining risk. Retaining risk is referred to as “self-insuring” against potential loss.
While there is no guarantee you’ll get in an auto accident or that your home will burn to the ground, the odds you will die are 100%. The fact that you will die presents some interesting financial strategies using insurance, in the IRS tax code, that are underappreciated and misunderstood by many. The death benefit of a Life or Long-term Care insurance policy is income tax free in nearly all cases.
You may be familiar with the income tax free benefits of a Roth IRA, while not recognizing the tax-free treatment of Life and Long-term Care death benefits. When we die, all of our assets are distributed to our heirs. This can involve probate costs, tax costs, legal costs, and liquidation costs. An insurance death benefit is quite simply a bag of tax-free cash available to your heirs, without cost after you die.
Wealthy people have used Life and Long-term Care insurance in estate planning and efficient wealth transfer strategies for many decades. This is not your group insurance policy at work, or policy you may have had as a youngster! Using the appropriate policies, integrated with your investments and other assets, may provide more tax efficient outcomes and greater flexibility throughout your life and beyond.
You have the ability to leverage the certainty of your death against your assets and increase your estate value on a guaranteed basis, provided you qualify. The tax-free benefits and other efficiencies available with these strategies comes with a “catch”. You must be healthy enough for an insurance company to accept the risk of insuring you. Every strategy comes with benefits and limitations and fully understanding both is important.
When applicable and appropriate, our firm seeks to use assets, not needed for lifestyle income, to gain estate value by adding a tax-free asset class funded by insurance. Using IRA Required Minimum Distributions (RMDs), not needed for lifestyle would be one example. This planning is not for everyone, but for those with wealth that will likely be passed on, this may improve performance without investment risk.