Participating Whole Life Insurance as a Tax-Sheltered Investment Risk-Transfer Strategy

Abstract

Since the turn of the century, the scale of household debt increased drastically for the vast majority of OECD countries (OECD, 2024a). Household debt refers to the financial liabilities of a household that require payments to creditors at a fixed date in the future (OECD, 2024a), which primarily consists of mortgages, car and education loans, and credit card debt. For as long as an individual is able to earn income and fulfill their financial obligations to creditors, their household debt can be managed. In the event of their death however, one of the very first responsibilities of the surviving beneficiary appointed by the decedent’s will is the settlement of this household debt. The creditor almost never extends the debt to the surviving beneficiary, as in many cases they do not have the same level of income; instead, the beneficiary is forced to settle the debt immediately. A prototypical scenario is the death of the primary income provider in a single-income family. In such scenario, the creditor does not extend the household debt to the surviving spouse as they are not working and do not have a stable income. As such, the surviving spouse, along with any other surviving dependents, are forced to sell the family home in order to settle the debt. Without an appropriate strategy, this catastrophic scenario could become the reality of the many families States that rely on a single provider for income. CZU: 368.91:334.72; JEL: G32, G18, G22, H21