Life Insurance and Annuity Products Play
a Part in Asset Protection
Shane Flait (2013)
Asset protection’s main concern is
protection of assets – protecting them
from being diminished or lost
altogether. Of course there are many
ways that a claim can be made on your
assets. And each way often requires a
different strategy. Insurance products
can play a part. Here’s how…
Life insurance’s main purpose is to
supply cash when a person dies.
Traditionally a family’s future
well-being is critically dependent on
carrying life insurance on the family
Carrying such insurance has been
regarded as a responsible sacrifice to
safeguard the future of a family after
the loss of the breadwinner. Because of
that, a long history of court rulings
has given a good deal of protection for
the cash value in such life insurance
against creditor claims. So in many
states the cash value of life insurance
policies are exempt from creditor
life annuity’s main purpose is supplying
a lifetime income. Saving to assure a
future income is considered responsible.
Its value has engendered state
protections similar to the cash values
of life insurance.
Homeowner’s and Car insurance offer
protection from damage to your house,
car and yourself. But they also offer
protection from claims against you due
to the damage that others may incur by
you – at your home or by your car. But
the extent of these personal claims may
dwarf your policy coverage.
Using an umbrella
policy can significantly broaden your
protection, since you can get a lot of
additional coverage beyond holding the
basic policies for relatively small
increased cost. It can protect you
against claims from accidents and some
personal acts; and your insurer may pay
for an attorney in many cases.
As a strategy, you
can take some of your unprotected assets
or investments and move them into an
insurance contract for the extra
protection it affords against creditor
claims. That way they’d be both
protected and available for later use by
you or your beneficiaries.
insurance products, you’re mainly paying
for its purposes as stated above. Their
investment growth possibilities are
limited and relatively more costly.
As an example, life insurance involves
costs, fees, expenses, surrender charges
and depends on the health of the
applicant. Everyone is not insurable.
Annuities once annuitized cannot be
surrendered for value. Income from
deferred annuities is taxed as ordinary
income and withdrawals prior to age 59 ½
are subject to a 10% penalty. Income
from annuitization is taxed part as
ordinary income and part as return of
capital. Annuities should be considered
long term investments.
Shane Flait is a writer and educator.
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