<p>As a good Boglehead it would not occur to me. Term life insurance I understand. We have a declining amount on my wife’s life. Permanent, whole life, universal, etc. insurance I don’t understand, so I don’t own it. </p>
<p>There are some reasons in addition to not understanding it:
Those insurance policies are sold, not bought. Nobody says, “hey, what I need is a complicated thing that my neighbor/friend/nephew sells to do something or other that will save me taxes.”
The upfront commissions on those products are obscene
Don’t let the tax tail wag the investment/insurance dog.
I’ve seen too many BH threads detailing how to extricate oneself from those instruments, which range from “take the loss now and walk away” to “you’ve already paid most of the commissions, may as well hang in there.” I have never seen a thread that says “thank goodness I bought one of those.”</p>
<p>So, do you understand this product well enough to explain it to yourself, much less me? </p>
<p>Our insurance agent told us that permanent life insurance isn’t worth it. He said if we were concerned about our kids having a big tax bite, we should just buy term life for the estimated amount of taxes, and that way we can put our assets in investment vehicles that make sense, without worrying about if the kids would lose a lot to taxes. I thought that was an interesting idea, but he said that was only if the taxes bothered us. </p>
<p>@hayden, that just might be an insurance agent to keep They make so much on the other kinds of insurance that they can’t seem to keep themselves from recommending them.</p>
<p>At what age do your term policies currently end? My DH’s ends soon, but health issues have changed since he bought it so getting another or an extension may be expensive or not practical.</p>
<p>We bought only term life when we were younger. H does not like to mix investments and life insurances. We have never thought of buying permanent life until now. H is 60, I am 58. Term life is not a guarantee renewable at our ages. H likes the flexibility of converting the existing 401ks to Roth. He has done this systematically every year to lessen the market volatility but at this rate we would still be hit with a big minimum distribution.</p>
<p>Vanguard is now advising their clients about including life insurance and annuities in the estate planning. H’s employer offers free personal professional adviser to all employees and retirees through Fidelity. The adviser does not sell insurance. He just showed us different models with and without insurance as part of the estate. The model with the life insurance option would leave the estate with lots more money. It is too darn complicated for me. Pay now or later, the IRS wants your money.</p>
<p>I dont’ sell life insurance but I did take the test and I’ve learned how all the products work. I would only recommend term insurance and it is a nice thing to have for many different reasons. Everyone’s situation is different. It is also tax free and you usually get the money in 2 days. I like the fixed term for a long term. I have a 20 year term policy and the premiums are fixed every year for 20 years. I can cancel it at anytime. The price is based on when you applied for the policy (your age) and I dont’ have to worry about trying to renew it. I don’t plan to renew it because by then I don’t think I will need it anymore.</p>
<p>"Has anyone on this thread bought permanent life insurance as a part of the estate planning?</p>
<p>H and I have quite a bit in our 401Ks, regular IRAs. Since 401ks, IRAs are not part of the trust, the kids would be paying at the max tax rate even on a stretch IRA payouts if we were to die first. We were advised to buy a single life permanent life insurance to protect the asset from taxes. The premium for a 3M policy is around 112K a year payable until both of us pass. At this point, we are unsure what to do. Any advices?"</p>
<p>That money, invested, would end up to be a far better investment than giving it to a life insurance company. I assure you that someone is making big bucks on that deal, and it’s not you. Paying 112K/year until you both die? What if one of you lives to be 100? I am sure that what they count on is that after a certain point, you’re going to decide to stop paying on the policy, and they won’t have to pay out. Just get a level term at a small fraction of that, get something uncomplicated, that you understand, that the kids will understand how to cash in. If you don’t understand it now, are you going to understand it if you become less mentally sharp over the years, as is the norm?</p>
<p>I dislike paying taxes as much as you do. However, getting involved in something like this to avoid taxes for the kids seems ridiculous. If you are leaving a huge estate, well, they will have enough in there to cover the taxes, easily, will they not? Consider doing things to pass on your estate now, like giving kids and spouse the max yearly before triggering any tax considerations. Pay for grandkids private schools, college, fund Roth IRAs for kids/grandkids, if they qualify. Give nice Christmas/birthday gifts. The IRS will still find a way to take your money after you die.</p>
<p>No. If you are a beneficiary of a life insurance policy, you don’t have to pay any taxes on it. It is a really nice benefit and you can do whatever you’d like with the money.</p>
<p>But if your estate ends up being greater than the state/federal limit, they do have to pay tax on that portion, right? It’s not like the insurance is always tax free. Our attorney told us to put it in a trust to avoid that.</p>
<p>While life insurance death benefits are generally excluded from income tax to the beneficiary, they are included as part of the estate of the deceased if the deceased was the owner of the policy at the time of death. This inclusion as part of the estate may subject the benefit paid to estate taxes both at the federal and state levels. Estate inclusion can be avoided if the owner of the life insurance policy is someone other than the deceased, however; this assignment must have occurred more than three years prior to the date of death, or the IRS will still consider the deceased as the policy owner for estate tax purposes.</p>
<p>^Doesn’t it have to be in an irrevocable trust? If my understanding is correct, if it’s owned by the deceased’s trust, it’s part of the estate and subject to estate tax. The only advantage of life insurance in that case would be having the liquidity to pay the estate tax at time of death.</p>
<p>You don’t pay income tax on your inheritance, either. Instead of life insurance if you pass onto what’s equivalent to your heir, it’s kind of the same.</p>
<p>“But if your estate ends up being greater than the state/federal limit, they do have to pay tax on that portion, right?” - </p>
<p>Even if we were very wealthy I would not loose a wink of sleep worrying about taxes that my heirs might need to pay on a windfall inheritance. However, for us it’s a moot point aince our estate will be under the federal $5 million … and there is no estate tax in CO. </p>
<p>The Federal Tax Exemption is $10.5M per couple. State taxes vary by state. If you have an estate over $10.5M, you need a good Estate Planning attorney, not a life insurance salesman.</p>
<p>Hi all, I’m following along with the last few posts about life insurance to pay off taxes. </p>
<p>Are you referring to estate taxes (on estates in excess of Federal limits) or capital gains taxes on the assets you leave to heirs? If you are referring to capital gains taxes on decedent’s assets, your heirs get a “step-up” basis at the time of your death and would only owe taxes on gains on top of the new stepped-up basis. That’s why there are competing interests for very wealthy people – gifting now to reduce the estate below Federal limits and letting the gains accumulate “outside the estate” vs. waiting until death to transfer assets (but run the risk of exceeding the Federal limits) but the heirs get the step-up basis. </p>
They make so much on the other kinds of insurance that they can’t seem to keep themselves from recommending them.</p>