Family Finances First

High-net-worth individuals may have money, but insurance is still the best protection against an unforeseen event.

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If there’s one job that parents have, it’s providing and caring for their family. While that involves all the usual things – clothes, food, shelter and more – it also means making sure your offspring are taken care of financially if you can no longer provide for them.

Consider life and critical illness insurance – both of which can be used to keep your family financially secure when you can’t work anymore.

Many high-net-worth individuals may think that a large nest egg will do the trick, and while it can help, retirement savings are typically subject to tax, which could eat into the final dollar amount. Instead, consider life and critical illness insurance – both of which can be used to keep your family financially secure when you can’t work anymore.

Bonnie Siemens, Manager of I.G. Insurance Services, says that life and living-benefit insurance, when used smartly, offer ways to protect yourself and your estate for future generations. Here’s how insurance can help.

Beat the Tax Man

A life-insurance policy isn’t taxed, so by paying premiums while you’re alive, you can guarantee that a set amount of cash will be transferred to your kids or grandkids. None of those dollars needs to be used on taxable assets, such as the sale of a family cottage. Another use for life insurance: If there’s a charity you want to support, you can leave a tax-free death benefit to that organization. “Individuals who have amassed some wealth can use life insurance to support organizations they believe in,” says Siemens.

Money for Care

High-net-worth individuals may want to consider buying a critical illness policy, which is paid out when you’re diagnosed with a life-threatening condition like heart attack, stroke or cancer. You can use the money however you want, including making a trip down south for medical care.

Siemens has seen people use a payout to go to the Mayo Clinic to receive treatments that aren’t offered back home. “It gives them the opportunity to do that without them having to withdraw money from their portfolio,” she says.

You can also opt for long-term-care insurance, a policy that will pay you a certain amount of money monthly to cover things like home care or care in a facility. “The income is non-taxable, and a high-net-worth individual can use it to pay for home care without having to take it out of investments in their estate,” says Siemens.

Cash Cow

If you think you’ll need a chunk of change in retirement but don’t want to draw down capital, consider buying permanent life insurance. Cash accumulates in the policy – and some policies come with dividends – which can be accessed while you’re alive. “This could be used as collateral for a business loan, or could be used as funds to buy out partners in a business,” says Siemens.

Don’t Go it Alone

Figuring out what type of life and living-benefit insurance you need is complicated, particularly when you have a large estate. Siemens recommends speaking to a financial advisor who will look at your current assets, your objectives and what the tax implications of your estate would be at death, to come up with a scenario that works for you.

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