Why the Rich Use Life Insurance to Create Wealth

Why the Rich Use Life Insurance to Create Wealth

For many years, the standard take on life insurance was to buy a term policy and use the difference between that policy’s premiums and whole life premiums to invest in mutual funds.

But a properly designed whole life policy can offer significant benefits.

Your principal is protected: Cash value isn’t subject to the vagaries of the market. When the market plummets, you won’t lose a nickel.

You’ll enjoy guaranteed growth every year. Granted, the growth is based on current interest rates, but the account gains every year no matter what happens in the financial markets. This growth is compounding tax-free growth too!

Dividends aren’t taxable. There is no guarantee you’ll receive dividends but depending on the company it might be pretty likely. For example, there are life insurance companies that have paid dividends for more than 100 years.

You can access your cash value any time for any reason with no tax and no penalty. Compared to 401(k) plans and IRAs, this can be a big benefit.

You can use the cash value to recapture lost depreciation on major purchases and interest and fees paid to banks. You can borrow this money yourself or lend it to others.

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When the policy is in place, you are insured for life. With term policies, you might not be able to renew if or when you need to, especially if you develop health problems. A lot of policies also allow for an accelerated death benefit, meaning that if you develop a chronic or terminal illness, you can access a portion of the death benefit yourself. 

Combine your life policy with real estate, private lending and auto financing to boost your wealth, both inside and outside of the policy. All funds inside the policy are tax-free for life.

Pay long term care and chronic care expenses. As mentioned above, an accelerated death benefit can make the burdens of illness less financially burdensome. This will protect your other personal wealth from being eaten away by long-term care expenses.

Death benefit. When you do finally shuffle off this mortal coil, your beneficiaries will receive a tax-free payout.  

For more information, please read:
10 reasons the rich use life insurance to create wealth | Modest Money

 

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