3 Tips to Build Wealth with Life Insurance
Picture it: your loved one passes away unexpectedly. There are dozens of things you’ve got to figure out fairly quickly. The most significant of these is where the life insurance policy is to cover the cost of the funeral and other final expenses. And sure, having the policy as a safety net in this instance is imperative. But life insurance can also be a tool for building generational wealth and security for the entire family while you’re still living. We’ll lay out three keys to help you use life insurance to create a lasting legacy like a millionaire.
The way we see it, wealth accumulation is broken down into three key categories:
But what does it all mean, and how does it pertain to life insurance? Let’s break these three keys down further.
Compound interest is, in short, an interest rate calculated by the principal loan amount and the interest from previous periods. It’s essentially earning interest on interest, and the savviest investors often consider this tool the 8th wonder of the world. Typically found in mutual funds and bank accounts, life insurance cash accounts, or permanent life insurance policies also accumulate compound interest. To make this option work for you and your family, we recommend investing in dividend-paying whole life insurance to enhance your savings. Additionally, some cash value whole life policies allow you the opportunity to add money to the account at your discretion.
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Tax-favored accumulation or growth describes any individual account, plan, or arrangement exempt from taxes under federal law. These types of accounts include traditional and Roth IRAs and HSAs. Interest earned on cash value policies, like those described above, is tax-deferred. In short, you can withdraw up to the amount you’ve paid into the account without taxation. The tax deferral is the most notable benefit life insurance has over traditional cash savings accounts or methods.
Positive leverage is borrowing funds, then investing them at a higher interest rate than which they were borrowed, with the intent to increase return on investment (ROI). Utilizing safe and positive leverage, in our opinion, would be when making transactions when the borrow rate is significantly lower than the investment rate. Positive leverage allows you to be insured and get your money back virtually simultaneously. We know what you’re thinking: HOW!? Tax laws allow you to take a loan out on your cash value policy – using the policy as collateral – and write it off on your tax return as an investment.
You see, getting insured is just the tip of the iceberg. Here at What-If Collective Co., we’re committed to bringing the insurers and the insured to the table to uncover more gems like these and make them more readily accessible to the most sensitive groups within our communities. Whether it’s positive leverage, tax-favored accumulation, or compound interest, our objective is to disrupt the status quo of life insurance by demystifying best practices for the most underrepresented.?
Our advice: give your family their flowers while all of you can still enjoy it.