Many of my clients can relate to this situation: they were told that a CD (Certificate of Deposit) is an investment strategy that can provide guarantees and stability. That is absolutely true, but when it comes time to think about how to pass the money from a CD to children or grandchildren, it may not be the most efficient way to do so.
In this example, Joe is a 65-year-old non-smoker. Joe has a $20,000 CD in a local bank and plans to leave it to his three children. He wishes it was more, but with the low interest rates and not wanting to risk the funds in the market, he just doesn’t see how he could increase his legacy today.
If Joe uses Western Fraternal Life’s Single Premium Whole Life, his $20,000 investment turns into $35,448 immediately.*
If Joe left his money in the CD, which was currently paying 1.0%, it would take him 58 years to accumulate the same benefit.
In a non-qualified CD the earnings are taxable each year as income.
In a life insurance policy, the growth in the cash value is tax-deferred and only taxed if the policy owner makes a withdrawal or surrenders the policy value.
By shifting the money from the CD to life insurance, the member can reduce their tax liability. Life insurance increases the benefit that will be paid to the beneficiary at death due to the leveraging power of the policy. Bottom line, death benefits are paid income tax free to the beneficiary.
In Joe’s example, the $20,000 payment in a Single Premium Whole Life has already turned into $35,448. This would allow him to leave each of his three children a tax-free benefit of $11,816 each.
Western Fraternal Life has been providing life insurance protection to members for 120 years. To discuss your financial options when passing on funds to heirs, call your agent or Western Fraternal Life at 877-935-2467.
* Subject to insurability - based on rates for a 65-year old male, non-tobacco user.
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Call 877-935-2467 to speak with a Western Fraternal Life Representative.