Creating Intergenerational Wealth Using Life Insurance

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Some families maintain their wealth over several generations. What’s their secret sauce? The answer may lie in using life insurance as a strategy that builds wealth that lasts over multiple generations. It’s important to understand how life insurance works and then determine if it is suitable for your family. Here are some things you need to know:

Understanding Term vs. Permanent Life Insurance

Term life insurance– Many people purchase a term life insurance policy because it’s cheaper. But term life insurance won’t help create wealth since it lasts only for a predetermined period. Once you outlive that term, the policy doesn’t exist anymore.

Permanent life insurance– Permanent life insurance is a permanent, lasting insurance that lasts until death as long as premiums are paid. It’s more expensive but also has a cash value accumulation feature. The cash value grows over time, and when you pass away, your beneficiaries receive the policy’s face value and accumulation tax-free.

The cash value of permanent life insurance can be a source of retirement income when taken through policy loans. When you pass away, your beneficiaries receive the policy’s face amount minus any policy loans – tax-free.


Creating intergenerational wealth through life insurance is all about long-term commitment. If you start your policy at a younger age and consistently pay your premiums, the policy’s cash value may become a significant financial resource. You could use it for retirement or let it grow, leaving behind a substantial death benefit for your heirs.

The premiums for permanent life insurance can be significantly higher compared to term life. However, if your goal is to build intergenerational wealth, the cost may be justified since it’s a strategy for building wealth for future generations.

Understanding policy loans

Policy loans are the funds you can borrow against the cash value of your permanent life insurance policy. For instance, if a financial need arises, you could take up a policyholder loan instead of withdrawing from your retirement savings. The interest rate may be lower, and you may have flexibility over the repayment schedule. However, the death benefit may be reduced if the loan is outstanding and the policy owner dies.

Irrevocable life insurance trusts (ILIT)

Using life insurance as a wealth creation strategy may involve irrevocable life insurance trusts. An irrevocable life insurance trust (ILIT) is a trust created during an insured’s lifetime that owns and controls a term or permanent life insurance policy or policies.

We’ve already established that one benefit of life insurance is its tax-free death benefit. However, if your estate is considerably large, it may be subject to estate taxes, including your life insurance proceeds. An ILIT can help keep your life insurance out of your taxable estate. Using this strategy, you can pass on more wealth to your heirs.

Life insurance as part of your estate plan may be an appropriate strategy for creating intergenerational wealth. With your financial, legal, and insurance professionals’ help, you can objectively determine how to leverage life insurance for your intergenerational wealth creation goals. Just remember, as with any wealth-building plan, starting early is essential.


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