Using Life Insurance to Leverage
a Financial Gift

Currently, the annual gift tax exclusion allows a single person the ability to transfer up to $13,000.00 to another person without impacting their overall lifetime exemption of $5.12 million before incurring gift taxes by the IRS1 This annual exclusion amount doubles to $26,000.00 if that annual gift is made by a married couple.2 For families interested in giving large portions of money to their younger generation or friends, this rule should be a critical aspect of their overall long term financial plan.

There are a variety of choices in which a person can efficiently plan for a tax-advantaged way to pass on their legacy. One popular option is the use of permanent life insurance.

Gifting insurance premiums to a policy on a child or grandchild can create a long term asset that offers guaranteed, long-term growth and stability for use later in their lives. Permanent insurance policies provide cash value that grows tax-deferred and can be withdrawn tax-free3, creating additional tax advantages to use toward a mortgage, education or living expenses.. Mutual life insurance companies often pay annual dividends4 from their profits that go directly to the owners of their life insurance policies - accelerating the growth of the policy's value. Certain life insurance companies may even pay an annual interest rate for a person that pre pays for an entire policy upfront.

Here is an example - Jonathan - a single, 70-year-old retired physician wants to provide his 1-year-old grandson, Edward with a financial gift. He purchases a 10 pay whole life insurance policy on his grandson using his current annual gift tax exemption of $13,000.00 per person. Jonathan pays the premiums for 10 years and the plan is fully paid up. Edward nor Jonathan own the policy – it is instead owned by a UTMA (Uniform Transfers to Minors Act) account. This provides Edward at the age of 25 with a permanent life insurance policy that holds a guaranteed cash value of $212,775.00 which will continue to grow every year, without additional premium necessary. Jonathan has passed along a sizable asset to his family without incurring any gift taxes while feeling assured of its year to year guaranteed returns.

Review of Benefits of Life Insurance

  • Provides leverage of a financial gift by immediately establishing a death benefit.
  • Guaranteed cash value offers diversification against downside stock market volatility.
  • With limited pay plans - a guaranteed premium pay schedule can be established from the beginning with guaranteed cash value projections in the future.
  • Mutual Life Insurance company whole life policies can provide annual dividends to accelerate the cash value and death benefit amounts.

This is just one method which financial representatives use permanent life insurance to assist in a person's transfer of wealth for legacy purposes. Talk to one of our financial representatives today to see if we can assist in making some of your ideas a reality.



Bill Olmsted is a life and disability insurance specialist with the Financial Balance Group in Rockville, MD. He assists clients nationwide with primary and supplemental income protection plans and basic estate planning with life insurance. He can be reached at bolmsted@wholelifeinsurance.com or directly at 301-917-2318.

*Disability Insurance Policy Forms 1400,1500 or 1600 underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly owned stock subsidiary of The Guardian Life Insurance Company, New York, NY.

Product availability, provisions and features may vary from state to state.

Registered Representative of Park Avenue Securities LLC (PAS), 1901 Research Blvd, Suite 400, Rockville, MD 20850. Securities products and services offered through PAS, 1-888-513-2300 Bill Olmsted – Field Representative, The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is an indirect, wholly owned subsidiary of Guardian. Financial Balance Group is not an affiliate or subsidiary of PAS or Guardian. PAS is a member FINRA, SIPC.

The views and opinions expressed herein are solely that of the author and do not necessarily represent the views and opinions of The Guardian Life Insurance Company of America or its subsidiaries or affiliates thereof.

[1] http://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax/INF12036.html
[2] http://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax/INF12036.html
[3] Guardian, its subsidiaries, agents or employees do not give tax or legal advice. You should consult your tax or legal advisor regarding your individual situation.
[4] Dividends are not guaranteed. They are declared annually by Guardian's Board of Directors.




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