7 Unique Ways That Life Insurance Can Help Wealth Creation
Life insurance can be a way to create wealth for the retirement years if used correctly. With retirement age ever increasing, more people are looking for ways to increase their wealth to avoid working well into their 60s and beyond. Life insurance can be an active way to increase wealth that is often overlooked. When setup correctly, life insurance can be a very successful wealth-building tool
With 43% of Americans lacking any form of coverage, it’s safe to say it’s an untapped market. It’s important to distinguish that only whole life policies will yield the results you’re looking for. Those with term structure don’t carry the same benefits. They simply pay out when you pass away.
Below are seven ways life insurance can help build wealth
Whole Life Insurance Offers Guaranteed Protection
One of the most attractive features of whole life policies is that they include a savings component that’s commonly referred to as its cash value. Like your bank account, whole life policies come with guaranteed protections that secure your investment and the payouts. Regardless of how volatile the market is, your policy and its value remains stable.
Value Builds Up with Payments
The more payments you make on your life insurance policy, the greater the value. Each policy is set up with monthly, semi-annual or annual payments. The premium is divided three ways with portions distributed to the death benefit, administration and investment fund. The majority will go towards the investment fund. Over time, as the investments flourish, so does the value of the policy and thus, the holder’s wealth.
Tax Benefits and Savings
One of the beauties of having a whole life policy is that the money invested generally is done so with a tax deferment. It’s not counted as income. This helps alleviate the burden for the holder and eventually the recipient. This means that any growth on the funds is not subject to taxes and results in more cash value.
Additionally, the death benefit is nontaxable for the most part, though estate taxes may factor in. Policyholders can set up a structure that pays the estate taxes directly from the proceeds before the benefit is distributed to the specified beneficiaries.
Benefit of Using the Cash Value
Unlike term policies that carry no cash value, whole life policies carry a balance. You can then borrow against the policy as it accumulates. Some people set it up so that there’s a large balance from the beginning. This tax-free money can be used to pay off other debts with interest-free payments, helping to improve your overall credit score. This gives you better buying power.
Another benefit to having the cash value available is that you can use the funds to create a wealth of diverse investments. For example, if you’re looking to get into real estate investing, you can borrow against the cash value to diversify your portfolio. Many people use the life insurance policy as their own personal bank account which helps to make the most of the money.
Add-On Policies and Riders Increase Versatility
Imagine being diagnosed with a chronic or terminal illness that renders you unable to work and bring in money. The first concern is how will you be able to support those who depend on you? Then you have to worry about how to afford the medical expenses that follow.
When setting up your life insurance, many companies give you the option to add on an “accelerated death benefit rider.” This gives you the opportunity to withdraw the majority of the policy before your death. The funds can then be used for living expenses instead of trying to figure out how to still work if possible. It alleviates the added stress and makes life simpler in the meantime. The rest of the death benefit is still available, and will be distributed to your beneficiaries after you pass away.
Eliminate Care Expenses
While many people age gracefully without the need for increased care, some find themselves visiting with the doctors. This is particularly true if you have a family history of illnesses that you’re at risk for. In the end, you might even need long-term care or assisted living services that can be quite costly. These high out of pocket expenses are not covered fully by insurance.
Many whole life policies have a stipulation in the contract that allows the money to be put towards these necessary expenses. This protects your other assets, leaving more behind for your loved ones in the event of your death.
No Rejections or Denials
Perhaps the main reason to set up a viable life insurance policy is to guarantee that you’ll have one later in life. It’s easy to put the process off thinking that you can always get one later on down the road. Unfortunately, this isn’t always true. Health circumstances can change in as little as six months to a year. If you have an elevated risk for certain diseases and illnesses, you can be outright denied for a whole life or term policy.
The best time to sign up for life insurance is when you’re young and in good health. To be approved for a whole life policy, you have to undergo testing to verify that you’re in good health. Planning ahead not only protects and provides for your loved ones, but it also helps to increase your wealth today. When set up correctly, it can serve as a fruitful investment that returns itself many times over. Speak with a qualified advisor and learn how to get started today to not only cover your bases but also to build up your wealth.