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.

BREAKING DOWN '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 After the transfer there are no more tax breaks, and so any funds that are withdrawn from the policy are subject to normal tax liability.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. Variable Life Insurance Policy

    A form of permanent life insurance, Variable life insurance provides ...
  2. Insurance Industry ETF

    A sector-following fund that invests primarily in insurance companies, ...
  3. Transfer-For-Value Rule

    The stipulation that, if a life insurance policy (or any interest ...
  4. Waiver Of Premium For Payer Benefit ...

    A clause in an insurance policy that says that the insurance ...
  5. Personal Lines Insurance

    Property and casualty insurance products for individuals that ...
  6. Permanent Life Insurance

    An umbrella term for life insurance plans that do not expire ...
Related Articles
  1. Insurance

    Do You Need Life Insurance For Your Child?

    Taking out life insurance for a child is hard to imagine, but having it can do more than just give you peace of mind.
  2. Retirement

    Why Own Life Insurance in a Qualified Retirement Plan?

    What are the pros and cons of owning cash value life insurance in a qualified retirement plan?
  3. Financial Advisor

    Getting Life Insurance in Your 20s Pays Off

    Find out how Americans in their 20s can benefit from a well-thought-out life insurance policy, especially if they are able to build cash value for retirement.
  4. Financial Advisor

    Advising FAs: Explaining Life Insurance to a Client

    Life insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death.
  5. Financial Advisor

    Why the Wealthy Should Buy Lots of Life Insurance

    Wealthy clients have an enviable problem — managing, preserving and growing wealth. Properly structured life insurance can help with these goals.
  6. Financial Advisor

    Is Life Insurance From Your Employer Enough?

    Covering the needs of the ones you would leave behind is not easy. But efforts to secure a life insurance policy outside of work should pay off.
  7. Insurance

    Term Life Insurance: Everything You Need to Know

    Term life insurance is an affordable way to financially protect your loved ones after your death. Here's what you need to know before purchasing a policy.
Hot Definitions
  1. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  2. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  3. Absolute Advantage

    The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost ...
  4. Nonce

    Nonce is a number added to a hashed block, that, when rehashed, meets the difficulty level restrictions.
  5. Coupon

    The annual interest rate paid on a bond, expressed as a percentage of the face value. It is also referred to as the "coupon ...
  6. Socially Responsible Investment - SRI

    Socially responsible investing looks for investments that are considered socially conscious because of the nature of the ...
Trading Center