When most people think about life insurance, they think about a payout after death. While life insurance plays an important role in protecting families and replacing income if something unexpected happens, that’s only scratching the surface of its potential. Today, life insurance can serve as a sophisticated financial tool with applications that extend far beyond a death benefit.
Why Insurance Belongs in Your Financial Strategy
A comprehensive financial plan considers every aspect of your wealth—assets, risks, estate documents, legacy goals, etc.—and insurance is a critical piece of that puzzle. Without the proper coverage, your estate, business, and even your family’s financial security could be at risk. In addition to safeguarding wealth, life insurance can create tax efficiency and serve as a cornerstone in estate, business, and retirement planning. The key is aligning the right type of insurance with your goals.
At Vardhan, our first step with every client is a holistic review: We seek to understand your current and long-term needs, goals, and aspirations. Then we take a closer look at your full financial picture, gaining a clear understanding of your resources, family, values, risk tolerance, and any other factors that matter to you or may impact your balance sheet. Then we examine your current estate plan. From there, we identify your potential risks and evaluate how insurance can protect your wealth and support your long-term objectives.
Strategic Uses for Life Insurance
Life insurance has evolved into a multi-dimensional planning tool, yet many people don’t leverage it to its full capacity. Here are just a few ways we use it with clients:
- Estate Tax Planning: For high-net-worth families, estate taxes can create liquidity challenges. Life insurance—particularly second-to-die policies—can provide heirs with tax-free funds at a fraction of the cost of selling estate assets. This ensures the legacy you’ve built transfers efficiently to the next generation.
- Business Continuity: In privately held businesses, a sudden death can threaten operations. Insurance is often used to fund buy-sell agreements, provide liquidity for succession, or ensure family members are financially secure if the owner or a key executive passes away.
- Retirement Income Planning: With personally owned life insurance (POLI), you can invest your annual premium, and it grows tax-free, similar to a Roth account. Later in life, those funds can be accessed as tax-free income. For some clients, this becomes an important way to supplement required minimum distributions without entering a higher tax bracket.
- Legacy and Gifting Strategies: Personally owned life insurance can also be a strategic way to pass wealth to children or grandchildren. For example, parents or grandparents can fund a policy on behalf of a child, allowing that child to access tax-advantaged funds later for major milestones, such as starting a business or planning for their own retirement.
Avoiding Common Missteps
Insurance should never be treated as an investment product to “maximize” by default. Too often, we meet new clients holding oversized policies that don’t align with their needs, paying high premiums for coverage that serves little strategic purpose. In many cases, we help clients reduce coverage and realign policies to better match their estate and retirement goals, thereby creating more liquidity to support additional goals.
For example, we had a client who was paying around $50,000 annually into policies he no longer needed for a death benefit. By repositioning those policies toward retirement income, we helped close a projected income gap and gave him more confidence about retiring on his terms.
When to Review Your Coverage
Your needs change as your wealth grows. That’s why we recommend reviewing your insurance every three to five years—or sooner if your financial situation changes or your family’s circumstances change (for example, you change jobs, have a child or grandchild, etc.). During onboarding, we always review existing policies to evaluate whether they still serve their intended purpose.
The Bottom Line
Life insurance is far more than a safety net. It can safeguard and even generate wealth when structured correctly. Whether you’re looking to transfer wealth efficiently, secure your business, optimize retirement income, create flexibility with lending, augment your philanthropic goals, or give to a loved one, insurance can greatly enhance your overall strategy.
At Vardhan Wealth Management, we don’t sell insurance as a product—we use it as a planning tool. The question isn’t how much you can buy, but how you can best use it to support your unique goals. If you’d like to explore how life insurance can serve you, we’d be glad to help.