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Life Insurance: More Than Just Protection for Your Family

Citi Personal Wealth Management

Life insurance's primary purpose is widely known: It can help ensure your family is okay financially if you die. But life insurance also has less publicized uses. It can help keep a business running, help with estate planning, create more options for charitable giving and even help with long-term care expenses. Intrigued? Here are some uses of life insurance you might discuss with your Financial Advisor.

Business Planning

Life insurance can be important to keeping a business running if a key owner dies. The policy's proceeds can help meet the firm's expenses and pay salaries during this transition period to new owners, cover any estate-tax bill and even buy out a family member who owns a share of the company but has no interest in being part of the business.

If you have business partners, a business-oriented life-insurance policy can help finance a buyout should one partner die. Indeed, life insurance can play a crucial role in a buy-sell agreement. Also known as a buyout agreement, this contract determines what happens if a co-owner chooses to leave the business, dies or is forced to depart.

This agreement between business co-owners is often backed by life insurance policies on the participating owners' lives. This arrangement, known as an "insured" buy-sell agreement, can provide the money needed by the remaining partners to pay for a deceased owner's share of the business. This can keep the business with the owners who know how to run it best, preserving the business value. At the same time, the deceased partner's estate gets the liquid value of the funds.

If business owners want to expand, they often need loans, either from a bank or a private lender. Lenders may require life insurance on the business owners as collateral for the loan. In most cases, you can buy a relatively inexpensive term policy, perhaps with guaranteed level premiums, to cover you for the duration of the loan.

Estate Equalization. A business owner may also use life insurance for estate equalization. For instance, if one child wants to take over a business, but the other doesn't, the life insurance proceeds can help to provide the one child who isn't taking over the business with an amount equal to the value of the business.

Estate Planning

Life insurance is among the most basic estate-planning tools. The death benefit can replace the income of a family breadwinner who dies.

It could also, however, help pay estate taxes. That might save your children or grandchildren from having to sell securities and other assets that you bequeathed to them. In addition, the policy's proceeds might fund college costs for your heirs and meet the special financial needs of relatives with mental or physical disabilities.

If you and your spouse are worried about estate taxes or you want to make sure there's money left for your heirs, you might consider second-to-die insurance, also known as survivorship life. These policies don't pay out until the second of two people dies. For instance, suppose you die and leave a sizable sum to your spouse. Thanks to the unlimited marital deduction, there shouldn't be any estate taxes owed. But when your spouse dies and leaves everything to the kids, the estate-tax bill could be substantial. Your heirs could pay that tax bill with the proceeds from your second-to-die policy.

You might investigate holding your life insurance in an irrevocable trust. If you have insurance on your life when you die, the proceeds usually aren't subject to income taxes. The payout, however, could be hit with federal estate taxes if you are listed as the policy's owner. As an alternative, you could have the irrevocable trust purchase and own a new life-insurance policy. Please speak with your tax advisor and estate planning attorney regarding the pros and cons of holding your life insurance in an irrevocable trust, compared with the trust owning a new policy.

Charitable Giving

Most people support their favorite charities by donating cash and property. But you can also use life insurance to help support a cause.

You could name a charity as the beneficiary of your life insurance. This can be an inexpensive way to make a charitable gift, since your premiums should be less than the death benefit. One of the drawbacks: If you continue to own the policy, your premiums are not tax-deductible.

If you're aiming to cut your tax bill, you might consider a policy donation. Unlike naming the charity as your beneficiary, donating a policy not only gives you an immediate tax deduction based on the fair market value of the policy, but also it shrinks the size of your taxable estate.

INVESTMENT AND INSURANCE PRODUCTS: NOT INSURED BY THE FDIC • NOT INSURED BY THE FEDERAL GOVERNMENT OR ANY OTHER FEDERAL GOVERNMENT AGENCY, BY THE BANK, OR BY ANY AFFILIATE OF THE BANK • NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, THE BANK OR AN AFFILIATE OF THE BANK • SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED

All guarantees are based on the claims-paying ability of the issuing insurance company.

The information provided here is for informational purposes only. It is not an offer to buy or sell any of the securities, insurance products, investments, or other products named.

Citigroup , its affiliates, and its employees do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

Since life insurance and long-term care insurance are medically underwritten you should not cancel your current policy until your new policy is in force. Your actual premiums may vary from any initial quotation you receive. A change to your current policy may incur charges, fees and costs. A new policy may require a medical exam. Surrender charges may be imposed and the period of time for which the surrender charges apply may increase with a new policy. You should consult with your own tax advisors regarding your potential tax liability on surrenders.

Past performance is not a guarantee of future results.

There is no guarantee that these strategies will succeed. This information is intended to illustrate products and services available. The strategies do not necessarily represent the experience of other clients, nor do they indicate future performance. Investment results may vary. Individual clients should review with their Financial Advisors the terms and conditions and risks involved with specific products or services.

© Citigroup Citi Personal Wealth Management is a business of Citigroup , which offers investment products through Citigroup Global Markets (CGMI), member SIPC Insurance products are offered through Citigroup Life Agency LLC (CLA). In California, CLA does business as Citigroup Life Insurance Agency, LLC (license number 0G56746). Citibank, , CGMI and CLA are affiliated companies under the common control of Citigroup Citi, Citi and Arc Design and other marks used herein are service marks of Citigroup or its affiliates, used and registered throughout the world.

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