If you’re a person who values confidentiality, life insurance can be a good way to quietly transfer funds and avoid outside scrutiny.
According to Edward E. Graves, author of “McGill’s Life Insurance,” life insurance can be easily modified so it isn’t considered part of a policyholder’s estate. This adjustment makes it immune to public disclosure.
For example, if you die a famed celebrity, no one has the right to disclose or publish information about the number of life insurance policies you own, or the benefit amount that is given to your loved ones. This adjustment is also applicable to private citizens.
There are several reasons why someone might find this kind of confidentiality appealing. Perhaps you have personal debt and need to use the policy for the post death funding of a private business agreement. A policy’s proceeds can also be used to ensure future payments for disability insurance through secret liability settlements.
It can also save a family from strife in delicate situations where a policy owner wants to leave unequal gifts to his beneficiaries, says Marc Belletsky, spokesperson for The Hartford.
“Most people don’t want to talk to their kids about their estate plan,” Belletsky says. “A life insurance policy is a direct contract between the insurance company and the policy owner. A beneficiary would never know they received less than another beneficiary unless they were told.”