The Essence of American Life Insurance: A Soulful Inquiry into Wealth Inheritance

Harvest Financial Group Wealth Management

The Essence of American Life Insurance: A Soulful Inquiry into Wealth Inheritance

An Intriguing Phenomenon: While it is widely acknowledged that American life insurance offers affordable premiums and advanced designs, it is intriguing to observe how some individuals tend to deviate when it comes to investment, emphasizing the higher returns from stock trading and overlooking the true value and significance of life insurance.

A thought-provoking contemplation arises when considering life insurance: What am I purchasing? It is insurance! While investments in indices or stocks may result in losses, it is crucial to carefully consider these two types of losses. Investing in stocks or indices can lead to potential losses, but when insurance compensates you, it is undoubtedly several times greater than your principal!

An adage well-known among investors is “Don’t put all your eggs in one basket.” The only basket that remains unbreakable is arguably life insurance, serving as the ultimate safeguard for investors.

The true value of life insurance lies in its role as an “immediate estate.”

In the United States, life insurance is often referred to as possibly the only means of creating an immediate estate because any other inheritance requires time, lawyers, and money to process. In essence, the transfer of assets typically involves wills, property transfers, and, if these assets are not placed in trust, the cumbersome process of probate. However, regardless of whether the policyholder has established a living trust, life insurance death benefits are paid directly to the beneficiaries, bypassing probate.

Life insurance payouts not only circumvent the probate process but also exempt beneficiaries from income taxes and protect them from the policyholder’s debts. Simply put, even when other assets are subject to disputes, the policyholder can clearly and definitively allocate the benefits to their descendants without any impact from debts, by specifying the beneficiaries and their respective shares within the life insurance policy. This nature of immediate estate is why many companies purchase substantial life insurance policies for key individuals (Key Persons). In the event of the key person’s death, a large payout can temporarily alleviate the operational challenges faced by the company.

Some may argue that purchasing life insurance means having money only after death and they don’t want to leave too much money to their children. However, let’s delve into the second layer of value of this immediate estate—the benefit during one’s lifetime, an insurance policy that can be utilized while alive.

Currently, the mainstream products offered by American Life Insurance typically include built-in coverage for chronic illness, critical illness, and terminal illness, without the need for additional purchases.

To put it simply, if you:
1. suffer from a chronic illness that prevents you from independently performing at least two out of the six activities of daily living (eating, dressing, bathing, mobility, toileting, and continence); or 2. are diagnosed with major illnesses such as heart disease, stroke, cancer, vital organ transplant, paralysis, or blindness; or 3. have a terminal illness with a life expectancy of only 24 or 12 months, you can receive an advance payout of your death benefit.

This additional coverage can greatly alleviate the financial burden on the policyholder caused by extra medical expenses and the potential need for long-term care due to chronic or major illnesses. Once this supplementary protection is triggered, your life insurance policy instantly becomes a source of cash flow.

Some individuals even think that it would be most advantageous if they experience a claim right after purchasing the policy, gaining maximum compensation at minimal cost. However, no one wishes to encounter such incidents, right? In reality, insurance companies gamble on you living a long and healthy life. The longer you hold the policy, the more funds the insurance company has for investments, and the cash value within your policy increases over the years. This is truly a win-win situation. Of course, no one knows whether tomorrow or an accident will come first; that’s why being prepared in advance is the essence of insurance.

Then some people say, “What if I live a healthy life until old age? I may not need the pre-death benefits.” In that case, go ahead and spend them.

This is the third layer of value in the concept of “IMMEDIATE ESTATE”: Policies with cash value allow policyholders to borrow or withdraw from the cash value. You don’t have to be ill to use it.

While ensuring sufficient premiums are reserved to maintain the policy, you can utilize the accumulated cash value through withdrawals or loans for other expenses or investments. The withdrawn amount or loan interest will be deducted from the death benefit. This is the inherent “private bank” attribute of high cash value life insurance policies. Some individuals with substantial assets may feel they have provided enough for their children and consider donating the money. Using life insurance for charitable purposes is truly virtuous, as the beneficiary can be directly designated to a charitable organization. Due to the leverage effect of life insurance, the principal you invest will be multiplied and directly paid to the charity after your passing. Additionally, you can also donate the existing cash value within your policy to a charitable organization by changing the beneficiary designation.

In conclusion, despite travel restrictions imposed by the US government for certain countries and regions due to the impact of the COVID-19 pandemic, reputable and well-established life insurance companies still accept applications from individuals who meet the criteria of “high net worth global residents.”

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