How Specially Designed Life Insurance Can Provide Flexibility for High-Income Earners

A high cash value life insurance policy can facilitate tax-advantaged growth that standard retirement accounts may not be able to match. Here’s how it works.

A businesswoman stands at the window of her office and looks out on a city skyline.
(Image credit: Getty Images)

It's a common scenario for successful, high-earning professionals: Decades of disciplined saving and investing have led to substantial nest eggs in retirement plans. But now, you find yourself in a financial bind. Despite your wealth, your money is largely inaccessible, tied up in retirement funds until a specified age. On top of that, the looming specter of significant tax burdens both now and in the future adds another layer of concern.

Fortunately, there's a viable solution that enables you to access your cash while maintaining the benefits of tax-free growth: a specially designed life insurance policy.

The challenge

High-income professionals often face a dual tax burden. Your current high income places you in a high tax bracket, reducing the net income you have available for investment. Meanwhile, the money you've diligently saved in your retirement plans will be subjected to potentially hefty taxes upon withdrawal later in life.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Additionally, while retirement accounts are great vehicles for long-term savings, they lack flexibility. You're penalized for early withdrawals, leaving you without a readily available source of funds for unexpected opportunities or emergencies.

This lack of liquidity can be problematic if you're looking to invest in new business ventures, diversify your portfolio or manage unexpected expenses.

Specially designed life insurance

For high-income individuals grappling with these issues, a specially designed life insurance policy may be the answer. This financial strategy utilizes a high cash value life insurance policy to facilitate tax-advantaged growth and offer flexibility that standard retirement accounts can't match.

Here's how it works:

First, the premiums you pay into your life insurance policy are used to capitalize the policy and build cash value over time. This growth occurs on a tax-deferred basis, mirroring the benefits of your retirement accounts, yet the compounding effect can be uninterrupted when using a nonrecognition policy loan.

Unlike retirement funds, however, the cash value in your policy can be accessed at any time for any reason without penalty. These withdrawals are generally tax-free, as they are considered loans against the policy's death benefit and cash surrender value. If properly managed, these policy loans have flexibility and are not required to be repaid during your lifetime and can be simply deducted from the death benefit or cash surrender value when the policy pays out.

This strategy enables you to tap into your wealth when needed, providing the liquidity to seize investment opportunities or meet unexpected expenses. At the same time, your cash continues to grow tax-free within the policy, aiding in building tax-favored wealth.

It's essential to note that when accessing the cash value of your life insurance policy through policy loans, interest is generally applied to the borrowed amount. This interest charge is an aspect that policyholders must strategically manage to maximize their policy's effectiveness.

However, a well-designed life insurance policy provides an opportunity to offset these interest charges. The growth of the cash value within the policy, when effectively managed, can potentially offset the interest applied to the policy loan, thereby recapturing the costs.

This balance is not a given; not all life insurance policies offer the features necessary to execute this strategy effectively. It's a delicate balance that must be carefully managed. Because of these complexities, it's crucial to discuss this strategy with a professional well-versed in specially designed life insurance policies. Their experience and understanding of these designs can help you leverage the full benefits of your policy, effectively manage potential costs and navigate the nuances of policy loans.

Benefits beyond liquidity

The benefits of a specially designed life insurance policy extend beyond liquidity and tax advantages. This strategic tool offers several key advantages for wealth management, asset protection and estate planning:

  • Asset protection: In many jurisdictions, life insurance policies are protected from creditors, providing a shield for your assets.
  • Estate balancing: Life insurance can play a crucial role in balancing out an estate among surviving family members. If certain assets are designated to specific individuals or charities, the death benefit from a life insurance policy can be used to equalize the inheritance among other heirs. This strategy helps to maintain family harmony by preventing potential disputes over perceived imbalances in inheritance distribution.
  • Estate liquidity: Often, significant portions of an estate, such as a family business or farm, can be illiquid, making it difficult for heirs to handle estate tax liabilities or operational expenses. A life insurance policy can provide immediate liquidity to family members or business partners upon death, ensuring the continuity of the business or farm without the need to sell off assets.
  • Estate planning: Life insurance proceeds can provide a tax-free inheritance to your beneficiaries, helping to preserve your legacy and safeguard your family's financial future.
  • Charitable giving: Policies can be structured to facilitate charitable giving, allowing you to leave a lasting impact in a tax-efficient manner.

These advantages underscore the impact a specially designed life insurance policy can have as an integral component of a comprehensive financial strategy. Offering flexibility and security, it serves as a potent wealth management instrument that equips high-income professionals to adeptly steer through their unique financial intricacies, bolstering their financial resilience and instilling confidence in their fiscal future.

Cost and cash value accumulation

A common pushback against using life insurance as an accumulation vehicle is the perception that it is expensive and takes a long time to accumulate substantial cash value. This perception is largely rooted in experiences with traditional life insurance policies, which are often structured for maximal death benefits rather than rapid cash value accumulation.

However, the life insurance policy we're discussing is not your typical off-the-shelf policy bought from your local property and casualty agent. The strategy here revolves around a specially designed policy structured with a focus on building high cash values.

In these policies, much of your premium goes toward rapidly building up the cash value of your policy, rather than paying for the death benefit. Over time, the death benefit increases as the cash value grows, depending on the structure of the policy.

Evaluating cost vs. potential tax liability

While there is an undeniable cost associated with a specially designed life insurance policy, it's crucial to consider this expense in contrast to the potential tax liabilities. Without proper planning, taxes can take a significant bite out of your investment growth.

Consider that retirement account distributions are generally taxed as ordinary income. For a high-income individual, this can mean losing a substantial chunk of your retirement savings to taxes. Conversely, the cash value growth within a life insurance policy is tax-deferred, and policy loans taken out are typically tax-free.

In many cases, the cost of a specially designed life insurance policy could be a mere fraction of what the tax liabilities may be on investment growth over time. The true cost of these policies becomes apparent only when considering the full financial picture, including current and future tax burdens, access to cash and long-term wealth accumulation.

A strategic approach to wealth management

This specially designed life insurance policy offers a unique tool to tackle the double-edged sword of tax burdens and liquidity needs that plague high-income professionals. It's a powerful option to consider when exploring avenues for efficient wealth management, especially when the alternatives—potential tax liabilities, lack of liquidity—are considered.

Indeed, a specially designed life insurance policy is not a catch-all solution, but rather a tool within the context of a comprehensive wealth management plan. Just as everyone’s financial situation and goals are unique, so, too, should be the approach to financial planning.

As high-income professionals, you are confronted with distinct financial challenges. However, armed with the right strategy, these challenges can be transformed into opportunities that pave the way toward greater financial independence and tranquility.

It's important to remember that financial planning is a collaborative endeavor rather than a solitary pursuit. A partnership with an experienced adviser offers not only guidance but also reassurance, ensuring that your strategies are optimized, your approach is personalized, and your financial trajectory aligns seamlessly with your unique needs and aspirations.

To learn more about these policy designs and whether this is something to consider, visit

BUILD Banking™️ is a DBA of Skrobonja Insurance Services, LLC. Benefits and guarantees are based on the claims paying ability of the insurance company. Not FDIC insured. Results may vary.

Securities offered only by duly registered individuals through Madison Avenue Securities, LLC. (MAS), Member FINRA &SIPC. Advisory services offered only by duly registered individuals through Skrobonja Wealth Management (SWM), a registered investment advisor. Tax services offered only through Skrobonja Tax Consulting. MAS does not offer Build Banking or tax advice. Skrobonja Financial Group, LLC, Skrobonja Wealth Management, LLC, Skrobonja Insurance Services, LLC, Skrobonja Tax Consulting, and Build Banking are not affiliated with MAS.

Skrobonja Wealth Management, LLC is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Skrobonja Wealth Management, LLC and its representatives are properly licensed or exempt from licensure.

The firm is a registered investment adviser with the state of Missouri, and may only transact business with residents of those states, or residents of other states where otherwise legally permitted subject to exemption or exclusion from registration requirements. Registration with the United States Securities and Exchange Commission or any state securities authority does not imply a certain level of skill or training.

The appearances in Kiplinger were obtained through a PR program. The columnist is not affiliated with, nor endorsed by Kiplinger. Kiplinger did not compensate the columnist in any way.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Brian Skrobonja, Chartered Financial Consultant (ChFC®)
Founder & President, Skrobonja Financial Group LLC and Skrobonja Wealth Management, LLC

Brian Skrobonja is a Chartered Financial Consultant (ChFC®) and Certified Private Wealth Advisor (CPWA®), as well as an author, blogger, podcaster and speaker. He is the founder and president of a St. Louis, Mo.-based wealth management firm. His goal is to help his audience discover the root of their beliefs about money and challenge them to think differently to reach their goals. Brian is the author of three books, and his Common Sense podcast was named one of the Top 10 podcasts by Forbes. In 2017, 2019, 2020, 2021 and 2022, Brian was awarded Best Wealth Manager. In 2021, he received Best in Business and the Future 50 in 2018 from St. Louis Small Business.