Why High Earners Need Life Insurance Too: Helping Your Family and Preserving Your Finances

There are several ways high-net-worth individuals can benefit from life insurance. It is a vehicle that could provide loved ones with an income stream, it can be used as an investment strategy, it may help to lower your estate tax burden, and it could also be a potential safeguard for business owners.

Generating an income stream – Cash Value Life Insurance

You may use the cash value portion of your permanent life insurance policy as an income stream during retirement. Cash value life insurance works because a portion of each premium payment gets siphoned into a savings feature that collects interest. There are several pros and cons of cash value life insurance. These include:

• Pros

  • You can withdraw cash, borrow from it, or even make premium payments.

    [i]

  • Cash value life insurance policies don’t expire after a specified period of time.

    [ii]

  • The funds contributed earn interest over time.

    [iii]

• Cons

  • It is more expensive than term life insurance.

    [iv]

  • You generally don’t see a significant cash value balance in the early years of the policy.

    [v]

  • Your beneficiaries may not get the cash value after you die.

    [vi]

  • Withdrawing cash from the policy will reduce the death benefit.

    [vii]

Using life insurance as an investment

When it comes to investing using life insurance, each person's situation will be different, and they should research how the pros and cons of each policy might impact them. The only policies that can be used for investing purposes are permanent life insurance policies that have the cash value component. The reason for this is that they may help mitigate the risk of loss from market fluctuations. Some of the advantages and disadvantages of using life insurance as an investment, include:

• Pros

  • Cash value insurance investing may be more predictable than traditional investing.

    [viii]

  • The money within the cash value grows tax deferred.

    [ix]

  • While you are alive, you can withdraw or borrow against the funds.

    [x]

• Cons

  • Traditional investing could potentially offer higher returns.

    [xi]

  • Your eligibility and the cost usually depend on your age and health.

  • The cash value doesn’t pass down to your heirs.

    [xii]

Tax benefits

High earners could benefit in a few ways from purchasing life insurance. Some of these include:

• Insurance premiums aren’t subject to estate taxes.

• Policy owners with estates of $13.99 million or less are able to leave that amount to their beneficiaries and avoid paying estate taxes for 2025.

  [xiii]

• The death benefit is a tax-free asset that can be passed down to your beneficiaries.

Safeguard for business owners

A life insurance policy has pros and cons for business owners who take out a policy to help pad against potential financial loss. These include:

• Pros

  • If you have a buy-sell agreement with a partner and one dies, you can buy out their share with proceeds from the death benefit provision.

    [xiv]

  • If you own a family business, life insurance may help ensure each family member gets an equal inheritance.

    [xv]

• Cons

  • The cash value can be a weak investment instrument.

    [xvi]

  • The application process can be tedious.

    [xvii]

Consider consulting a financial professional

Life insurance policies can be complex. Consider consulting your financial professional to determine which type of policy would work for you and your financial strategy and goals, especially when creating or modifying your estate plan and including life insurance.

_{Important Disclosures:}

_{This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.}

_{This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.}

_{All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.}

_Sources:

_{[i]Cashing In Your Life Insurance Policy
[ii]What Is Cash Value in Life Insurance? Explanation With Example
[iii]How to Benefit From Compound Interest in Your IUL
[iv]Term vs. Whole Life Insurance: What's the Difference?
[v]What Is Cash Value In Life Insurance?
[vi]FAQs • What happens to the cash value in my policy when I di
[vii]When Is It OK To Draw Cash From a Life Insurance Policy? | U.S. News
[viii]11 Best Low-Risk Investments: Safest Options for 2025
[ix]What Is Cash Value in Life Insurance? Explanation With Example
[x]How Soon Can You Borrow Against a Life Insurance Policy? | Guardian
[xi]Q2 2025 Investment Outlook | BlackRock Investment Institute
[xii]Do Beneficiaries Pay Taxes on Life Insurance?
[xiii]IRS releases tax inflation adjustments for tax year 2025 | Internal Revenue Service
[xiv]Buy-Sell Agreement Definition, Types, Key Considerations
[xv]Exploring Joint Life Insurance: Is it Right for You? Pros, Cons and Your Options | Thrivent
[xvi]Is Whole Life Insurance a Good Investment in 2025? - NerdWallet
[xvii]What Happens If You Lie on Your Life Insurance Application? | Bankrate}

_{This article was prepared by LPL Marketing Solutions}

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