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20 Jun 2024 | Life Insurance

How Life Insurance Can Save Your Estate from a $735,000 Tax Bill

“$735,000. That is the taxes due. As much as you wish it would go away it simply won’t. It has to be dealt with.” “So…how do you want to pay for that?”

Here was a portion of a conversation I had last week. I’ve said many times that business owners, whether they want it or not, have a silent partner…The Tax Department.

As a business owner, planning for the future is paramount. One crucial consideration is the potential tax burden that arises upon the death of the last spouse. The last thing you want is for your hard-earned wealth to be significantly diminished by hefty taxes. However, there is a solution that offers substantial benefits in the short and long term: Life Insurance.

Here’s why life insurance is a compelling choice to cover these tax obligations and why it surpasses the traditional “dollar for dollar” payment method.

Uncertainty Surrounding Mortality:

Let’s address the fundamental question: can you predict the exact date of your death? Unfortunately, the answer is no.

Cost-Efficiency:

While it’s true that the short-term benefit of life insurance outweighs the cost, what about the long-term? Some may argue that paying dollar for dollar may eventually be more cost-effective. Or as the person said to me, break even. To this, I say see the point above.

Life insurance presents a unique advantage by offering substantial coverage at a fraction of the potential tax liability. By paying relatively smaller premiums over time, you can secure a much larger death benefit that effectively covers that imposing tax bill, often leaving additional funds for your beneficiaries.

Preservation of Assets:

Using life insurance to cover the tax bill allows you to preserve your hard-earned assets. Instead of depleting your estate, liquidating investments, or selling business interests, life insurance enables you to pass on your wealth intact to the next generation or to help your favourite charity. Truly. It’s that the goal?

Immediate Availability of Funds:

Upon the death of the last spouse, the tax authorities typically require payment within a relatively short timeframe. This can place a significant burden on your family during an already emotionally challenging period. Life insurance ensures that the necessary funds are readily available, eliminating the stress and potential disruption that can arise from trying to raise the required funds quickly.

Flexibility and Customization:

Life insurance policies can be tailored to meet your specific needs and objectives. From choosing the appropriate coverage amount to determining the policy duration, you have the flexibility to align the life insurance plan with your overall financial and estate planning strategy.

When faced with a potentially large tax bill it is essential to consider the long-term implications and explore viable solutions. Life insurance emerges as a compelling option, offering numerous benefits that outweigh the traditional “dollar for dollar” payment method.

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The views expressed in this article are for informational purposes only and do not constitute insurance advice. Readers are encouraged to contact a representative from Benchmark Insurance Ltd. directly for personalized insurance solutions tailored to their individual needs. Benchmark Insurance Ltd. is a niche insurance agency offering Life, Critical Illness, Long-Term Disability, and Group benefits to individuals and businesses across Ontario. To learn more about our services and how we can assist you, please reach out to us at info@benchmarkinsurance.ca or call 647-955-1242.
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By: admin

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