With retirement age ever increasing, more people are looking for ways to increase their wealth to avoid working well into their 60s and beyond. While there are several active ways to increase wealth, one passive area that many people overlook is sitting right in front of their faces: life insurance. While its primary purpose is to provide ample support to dependents or beneficiaries, it also makes for a very successful wealth-building tool when setup correctly.
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. Let's take a look at how the wealth adds up.
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 on any given day, your policy and its value remains stable.
The more payments you make on your life insurance policy, the greater the value increases. Each policy is set up with monthly, semi-annual or annual payments, or premiums. The premium is divided three ways with portions distributed to the death benefit, administration and investment fund, with the majority going toward the investment fund. Over time as the investments flourish, so does the value of the policy and thus, the holder's wealth.
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, which 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.
Unlike term policies that carry no cash value, whole life policies not only carry a balance, but you can borrow against the policy as it accumulates. Some people set it up so that there's a large balance from the beginning, and as mentioned previously, it's all tax-free. You can use the money to pay off other debts with interest-free payments, helping to improve your overall credit score without taking on a debt-consolidation loan. 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 with the money. If you're looking to get into real estate investing, for example, 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.
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 and use it to live instead of trying to work through debilitating treatments. 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.
While many people age gracefully without the need for increased care, some find themselves visiting with the doctors on a monthly or weekly basis. 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 prove to be quite costly. Most of these expenses are not covered fully by insurance which results in a significant monthly amount paid out of pocket.
Many whole life policies have a stipulation in the contract that allows the money to be put towards these necessary expenses, so you don't have to worry about them. This protects your other assets, leaving more behind for your loved ones in the event of your death.
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, and if you have a scare or elevated risk for certain diseases and illnesses, you can be outright denied for a whole life policy or even a term policy, leaving you with no options.
The best time to sign up for life insurance is when you're young and active 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 could 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.