There are lots of people who don’t fully understand how real estate works. This is not surprising since there is so much to learn and a lot of avenues to take.
Some people simply opt to not have life insurance. This might be because they think it’s too expensive or because it’s a waste of money. However, life insurance can offer huge advantages when planned properly.
When it comes to the wealthy, life insurance has a lot of significant benefits. Having this kind of asset helps to alleviate taxes, and offers lots of potential for additional cash accumulation over time.
This is ideal, since the larger an individual’s income, the higher their annual taxes will be. Different types of permanent life insurance also offer significant investment options that are non-taxable.
For those who are wondering why the wealthy buy life insurance, there are a few main reasons. While they are specific to those with larger incomes, life insurance is still an ideal asset for any individual, despite their financial situation.
According to Statistics Canada, the median household income for Canadians was a little more than $70,000 in 2015.
While many Canadians might not be considered “wealthy”, life insurance can be a great way to get the most out of a person’s income.
Here are some reasons why the wealthy buy life insurance:
The two main types of investments are known as Term Life and Whole Life. With term life policies, there are no options for investments; however, whole life policies have a range of investing options.
The wealthy usually opt for whole life insurance, both because they can afford the higher premiums and for the investment opportunities.
Investments in life insurance are tax-sheltered, which helps to improve returns dramatically. Additionally, fees that are charged to the insured to maintain their portfolio are fairly affordable, while returns are quite positive.
Well-off Canadians are also beginning to borrow, in order to pay for the life insurance premiums. Although they can certainly afford to pay out of pocket, this approach allows them to take advantage of low borrowing costs.
In the end, they’re spending less of their own money and enjoying high cash returns as well as a death benefit.
To Make Donations
Many of the wealthy people in Canada donate to charities, simply because they have the means to make large donations. For those who are unable to give as much as they’d like, life insurance may make this possible.
This is a good thing since Canadian donations in 2016 were down 2.7% from 2015.
By investing in a life insurance policy, people can fund a gift to a chosen charity at the time of their death. There are various ways to donate to a policy.
The first route is for a person to donate a policy in the name of a charity and pay the premiums. In this case, donators would receive a donation tax credit, for the market value of the policy. They would also receive a receipt for the value of the premiums paid.
Similarly, a charity can purchase a policy under a person’s name and have them pay the premiums.
Another option is for a person to own a policy themselves and name the charity as the beneficiary. That way when the insured passes, the payout will go to the charity of choice.
To Leave Equal Inheritances
When the wealthy pass away, they often have a lot of assets to pass around to their loved ones. Whether it’s a lump sum of money, real estate or a business, it’s important that these assets go to the right people.
For those with more than one beneficiary, it’s common that they want to make sure everyone is getting an even slice of the pie. While one individual might be granted ownership of a business, another might be granted ownership of a home or cottage.
In the case that one asset is more valuable than another, life insurance is a great way for the wealthy to even things out.
For example, if the business is worth $100,000 but the investments are only worth $50,000, then the insured might decide to purchase $50,000 in life insurance to make things fair.
The one important thing to consider in this case is how much of the inheritance will be taxed. If an estate still has a large amount of taxes to be paid, then the gifts may not be balanced.
It is essential that those with an inheritance to gift make sure they complete a will. Without one, it’s possible that years of hard work and financial planning will not end up in the hands of the right beneficiaries.
For End-of-Life Taxes
Lots of people assume that once they die, all of their debt goes away. Unfortunately, all of that debt is often placed on surviving loved ones, who will have to make up the difference.
For the wealthy, having life insurance can help to avoid leaving loved ones with huge amounts of debt, or large tax sums.
Those who own businesses and large assets utilize life insurance, in order to cover taxes left at the time of death. This way, any estates are not left bankrupt after paying leftover charges.
Those with an abundant amount of money understandably want to keep as much of it as possible. Life insurance is just one of the ways that Canadians can protect their hard-earned incomes without having to give lots back to the government.
Life insurance is not just for the wealthy. While people with large incomes commonly utilize this asset, any Canadian with any income can use it to their advantage.
For those who are unsure about how to best use their money, it’s ideal to work with a trusted financial advisor. This individual can discuss the policies available, and which might be most ideal for a person’s situation.
The wealthy buy insurance to protect their income; however, all Canadians should consider the benefits of having a life insurance policy.