Life Insurance: Asset Protection ARTICLE

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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 breadwinner.


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 claims.


A 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.


Unfortunately, with 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. See more at