Life insurance: Creating generational wealth

A life insurance policy not only ensures financial security for your loved ones, but also serves as a powerful legacy-planning tool, enabling your family to build and grow wealth during your lifetime.

Strategically leveraging life insurance to generate additional income is an excellent way to establish a legacy that endures beyond your lifetime through generational wealth.

What is generational wealth?

Generational wealth is essentially financial benefits passed down from one generation to the next.

Generational wealth often refers to real estate, businesses, cash savings, valuable items such as jewellery and insurance benefits such as life insurance payouts.

Why is generational wealth important?

Generational wealth is important as it ensures that your family members are financially stable, can pursue the opportunities and goals they desire, and can mitigate the impact of economic uncertainties.

More importantly, generational wealth often includes intangible elements, such as passing down financial literacy, knowledge and a legacy of planning and preparation.

Building generational wealth involves careful planning and foresight, often through investments and insurance.

Let’s explore the role of life insurance in creating generational wealth.

• Creating tax-free inheritance: The proceeds from a life insurance policy are typically paid out tax-free to beneficiaries, thus providing them with immediate cash that can pay off debts or serve as capital for investments.

• Protecting assets: A life insurance policy can serve as a financial safety net, preventing your family from liquidating assets like property or investments to cover any expenses after your death.

• Equal distribution of wealth: A life insurance policy provides a practical solution for distributing wealth fairly among heirs, particularly when assets like properties or businesses are difficult to divide. This secures the future of all children while maintaining your legacy.

• Customisable product: Increased spending, reduced savings and longer lifespans are making it more challenging for individuals to leave tangible assets for their families.

However, life insurance offers a customisable solution for generational wealth planning. It allows individuals to choose a sum insured that fits their budget, enabling them to provide long-term financial security for their loved ones.

• Financial responsibility: Life insurance can be used as part of a broader financial plan to educate your family about managing and growing the wealth they inherit.

A life insurance policy encourages policyholders to think about the future and prepare for uncertainties. It demonstrates the importance of proactive financial planning.

Your beneficiaries also see firsthand the impact of thoughtful financial decisions, setting a precedent for planning their own finances.

This column by Nutan Ragoobir, a senior insurance professional, author and founder of the Girmitya Foundation, appears bi-monthly in Business Day.