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As the term suggests, waterfall concept is a sequential and linear approach. In terms of insurance, it refers to the life insurance wherein insurance holders roll their policy (a tax-exempt whole-life insurance policy) over to the next generation that could be either a child or a grandchild. The concept enables the holder to transfer the policy to a descendant without much tax concerns (at the time of the transfer). However, when the child/ grandchild decides to withdraw anything from the policy, they are required to pay taxes on the funds (at their own effective tax rate).