Life Insurance as an Asset

by Michael Waterhouse

Many people do not think about using life insurance as an asset. The industry pushes clients to buy term insurance and invest the difference; however this strategy is not followed consistently. Often times, Americans manage cash flow backwards; income comes in, lifestyle is chosen, debt is incurred, and taxes are paid. By the time all of the current cash flow expenditures are dished out, and the term insurance is paid for, there is far too little left to save toward retirement or for any significant unexpected expenses. Sometimes, a more efficient, more effective way of achieving the proper death benefit protection and wealth accumulation is not necessarily by maxing your contributions to the company 401(k) plan or Roth IRA; however, in conjunction with a complete financial plan, it can be accomplished through a permanent form of life insurance called Whole Life. The most important difference from term insurance is that it is permanent; it is “when you die” insurance rather than “if you die”.  It will pay a death benefit at an unknown time period in your life and the cost per year remains level. In addition to a guaranteed death benefit,1 permanent life insurance builds cash value within the policy and provides a competitive rate of return when compared to other fixed products.  At this point in our economy, safety and consistency in a financial product is very important, especially with the current volatility and mystery that exists in other markets and products.

The death benefit and cash value in a whole life policy grows at both a guaranteed and non-guaranteed2 rate If let to accumulate over a period of time, the cash value can be borrowed against or withdrawn3 to help pay for countless expenditures throughout life such as college tuition, purchasing real estate, financing business opportunities, funding business succession planning and providing supplemental retirement income. In addition, and most importantly, if these policies’ cash values are not borrowed against or withdrawn, the death benefit may increase over time to an amount far greater than was originally purchased. There are plenty of great investment opportunities in variable securities and some of these should be incorporated into one’s financial plan. Permanent life insurance is one piece of the puzzle and plays an integral part of an overall plan, covering various areas of a complete financial picture on a more secure, guaranteed basis. I am not saying it is right for everyone, however it is something to consider when ensuring your family, your business, and your wealth are protected.

1All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values. 2Dividends are not guaranteed. They are declared annually by the issuing company’s board of directors. 3Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.2015-10346 Exp. 9/17

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