Waterfall Concept

AAA

DEFINITION of 'Waterfall Concept'

A life insurance plan that provides a tax benefit in regards to intergenerational transfers of wealth. The concept occurs when a tax-exempt insurance policy is rolled over to a child or a grandchild. The origin of this term is derived from the fact that this insurance plan is similar to waterfalls in that it only flows downwards.

INVESTOPEDIA EXPLAINS 'Waterfall Concept'

The tax benefit occurs when the initial insurance policy is rolled over to the child or grandchild. After the transfer there are no more tax breaks, and so any funds that are withdrawn from the policy are subject to normal tax liability. However, clients can implement different variations on the waterfall concept to meet different objectives.

RELATED TERMS
  1. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
  2. Variable Life Insurance Policy

    A form of permanent life insurance, Variable life insurance provides ...
  3. Life Insurance

    A protection against the loss of income that would result if ...
  4. Tax Liability

    The total amount of tax that an entity is legally obligated to ...
  5. Second-To-Die Insurance

    A type of life insurance on two people (usually married) that ...
  6. Contract Holder

    An individual or organization who owns the rights to a debt or ...
Related Articles
  1. How To Avoid Taxation On Life Insurance ...
    Options & Futures

    How To Avoid Taxation On Life Insurance ...

  2. Getting Started On Your Estate Plan
    Options & Futures

    Getting Started On Your Estate Plan

  3. Life Insurance: Putting A Price On Peace ...
    Insurance

    Life Insurance: Putting A Price On Peace ...

  4. What is the difference between term ...
    Home & Auto

    What is the difference between term ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center