What Does Waterfall Concept Mean?

The term refers to a life insurance scheme which provides its users with tax benefits regarding wealth-transfers between generations. Waterfall concept is applied when a certain tax-exempt contract is transmitted to either a child or to a grandchild.

One may be interested in the origin of the concept. It is easy to understand that the process of such an insurance scheme is very closely connected to waterfalls in the sense that it only works (or flows) from a higher to a lower place, that is to say, from an ancestor to a predecessor.

Waterfall Concept Explained

Tax benefits resulting from the waterfall concept occur when one transfers his or her original insurance contract to his or her child/ grandchild. However, after the end of this transfer, the newly withdrawn funds coming from the contract will become subjects to normal tax obligations again.

Nevertheless, today there are various waterfall concepts, so one can choose one from the many offers based on his or her personal or financial needs.