Broker Check

Help Preserve Your Wealth for Future Generations

Using Life Insurance for Death Benefit Protection & Legacy Building

Gain financial protection and help maximize the money you pass along to heirs.

There may come a time when you may need to think about the future generations of your family. You have worked hard, accomplished your goals, and accumulated funds to support a comfortable retirement. Along with your careful planning, maybe you would like to set aside funds to pass along to your children or grandchildren. Whether the amount is a little or a lot, wouldn’t it be nice to help ensure those funds are passed along in a tax efficient manner?1 This would help maximize the money you can provide to your heirs. Life insurance provides death benefit protection and can help increase the value of the funds you pass along to beneficiaries.

Legacy building, also referred to as wealth transfer, is simply a plan using life insurance to pass along money to your beneficiaries in a way that’s most favorable for them and for you.

Key Questions Item Discussed

  • Why life insurance?
    Learn how a life insurance policy can be used to meet death benefit protection needs and help maximize the wealth you pass along to heirs.

  • Who can benefit?
    Explore if using life insurance for legacy building is right for you.

  • How does it work?
    Discover how legacy building can protect what’s important to you and leave behind a lasting legacy.

Why Life Insurance?

Life insurance provides a death benefit, which can help provide financial security to beneficiaries generally income tax-free.1 For legacy building, life insurance offers the same two key benefits:

  1. It helps to provide financial protection and passes along a generally income tax-free death benefit.1
  2. It can help maximize the funds you pass along— whether it’s for your children or grandchildren, a church, or perhaps a charity.1

If you have set aside funds, you owe it to yourself to explore how life insurance can help efficiently pass those funds along to your beneficiaries.

Who can Benefit?

There are a few items to consider before deciding on a legacy building strategy using life insurance. Importantly, legacy building should only be considered if you have funds available to support yourself throughout retirement. Those who have money already set aside for heirs typically consider a legacy building strategy. These assets are often held in low interest-earning accounts, which may not be a tax-efficient method for transferring wealth.1

Here are a few questions to help you determine if the strategy is right for you:

  • Are you within the retirement ages of 55-75?
  • Are you financially sound, with your own retirement plan?
  • Do you have children, grandchildren, or an organization you’d like to benefit?
  • Are you holding funds designated to leave to heirs or children—certificates of deposit (CDs), savings accounts, or money market accounts, especially accounts designated as “payable/transfer on death” or POD/TOD?
  • Have you named your heirs joint owners of your assets?
  • Do you have an annuity you’d like to pass along to heirs or are you taking required minimum distributions (RMDs) from an account?
  • Are you looking for tax-advantaged solutions to transfer funds?1


  • Immediate death benefit protection. From the start, you gain death benefit protection that will be paid out to your beneficiary upon death.
  • Income tax-free transfer to heirs. When you die the death benefit passes generally income tax-free to heirs.1
  • Leverage. With life insurance, your premium payments can provide a larger death benefit immediately after issue. For example, if you purchase a $250,000 life insurance policy, that full amount would be paid as a death benefit once your policy is put in force. If your first premium payment is $1,500, for example, those dollars are “leveraged” immediately into the full $250,000 death benefit. These premium dollars purchase the full death benefit amount that would be available upon death.
  • Tax-deferred growth. The premium payments into a permanent life insurance policy may earn interest and grow on a tax-deferred basis.2
  • Liquidity. Should your needs change or in an emergency, you may access the funds in a life insurance policy through loans, withdrawals, or accelerated benefits.3

How Does It work?

When properly structured, a legacy building plan can help you gain death benefit protection and maximize the funds you leave to heirs.

  1. Establish whether the strategy is appropriate for you and that you need death benefit protection.
  2. Locate the funds you would like to pass along to your beneficiaries. These funds represent assets you don’t plan to use for retirement. The funds may be in a CD, annuity, IRA, or savings or checking accounts.4
  3. The designated funds are then transferred into a life insurance policy. This may immediately increase the amount available in the form of a death benefit. Consult your representative about methods of transferring funds into the life insurance policy.
  4. Upon death, the funds from the life insurance policy are passed along to beneficiaries in the form of a death benefit—passing along a legacy.


It is important to explore your options and to work with your representative to gain a clear picture of your needs. The goal is to help you decide on an appropriate direction. There are costs with life insurance. Permanent life insurance policies require monthly deductions, which include the cost of insurance, expense charges, and potentially other charges. These deductions may reduce the cash value of the policy.

1 Neither North American Company for Life and Health Insurance nor any of its agents, employees or representatives is authorized to give tax or legal advice. Please consult with and rely on a qualified tax or legal advisor before entering into or paying additional premiums with respect to such arrangements or commencing any charitable giving plan.

Any tax advice included in this written or electronic communication, including any attachments, was not intended or written to be used, and it cannot be used by you or any taxpayer for the purpose of avoiding any penalties that may be imposed on you or any other person under the Internal Revenue Code or applicable state or local tax law provisions. Although any tax advice contained herein was written to support the promotion or marketing of the transaction(s) matter(s) addressed by the advice, it cannot be used by you or any taxpayer to, promote, market or recommend to another party any transaction or matter addressed herein. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor.

2 The tax-deferred features are not necessary for a tax-qualified plan. In such instances, you should consider whether other features, such as the death benefit and optional riders make the policy appropriate for your needs. Before purchasing a policy, you should obtain competent tax advice both as to the tax treatment of the policy and the suitability of the product.

3 Policy loans from life insurance policies generally are not subject to income tax, provided the contract is not a Modified Endowment Contract (MEC), as defined by Section 7702A of the Internal Revenue Code. A policy loan or withdrawal from a life insurance policy that is a MEC is taxable upon receipt to the extent cash value of the contract exceeds premium paid. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59½, with certain exceptions. Policy loans and withdrawals will reduce cash value and death benefit. Policy loans are subject to interest charges. Consult with and rely on your tax advisor or attorney on your specific situation. Income and growth on accumulated cash values is generally taxable only upon withdrawal. Adverse tax consequences may result if withdrawals exceed premiums paid into the policy. Withdrawals or surrenders made during a Surrender Charge period will be subject to surrender charges and may reduce the ultimate death benefit and cash value. Surrender charges vary by product, issue age, sex, underwriting class, and policy year.

4 Removing funds from a qualified plan, including an Individual Retirement Account, may result in a taxable income distribution. Removing funds from an annuity may result in surrender charges and/or income taxes.