What are the living benefits of whole life insurance? Do they exist? We often hear that it is the worst financial product. What if the opposite were true? When would you want to know?If I were under the wrong impression about anything, I would want to find out as soon as possible. Having the wrong information about any sort of financial product or strategy can mean a loss of a lot of wealth. Don’t let your lack of knowledge be the deciding factor on anything.I’d say that the majority of people out there know little to nothing about whole life insurance. (Even the employees at the administration office of these insurance companies are clueless!) Now, we’re not insurance salespersons, but we’ve learned a lot about it in the past few years.My hope is to inspire you to learn more. If you don’t know much about something, research it, ask questions, learn more about it. You can’t learn less. You can only know less.What I ask of you is one thing: Put your preconceived notions and ideas of life insurance aside.Allow yourself to learn more by being open to new ideas. I guarantee you that if you thought whole life insurance was a bad product, you’ll change your mind as you continue reading through this website.So let’s dive into why I call whole life insurance the backbone of our financial plan.Your knee jerk reaction.What’s the first thing you think of when I say the words: Whole Life Insurance? I bet the first thing that pops into your head is: Expensive! Don’t worry, you’re not alone. That’s typically what everyone’s knee jerk reaction is. Maybe we have the popular financial pundits to thank for that.But that response is only half true. It’s the premiums that are expensive. However, just because something is expensive doesn’t mean that you should turn the other way. What’s key here is that you know what benefits the product, plan, or strategy provides in order to make your best judgment.So why do we love this product? It’s because of…The Living BenefitsWhen people think of the benefits of life insurance, they usually only focus on the death benefit. Well, with term life insurance, that’s the only thing it has to offer. But with whole life insurance, there are living benefits. They are advantages available to you when you are alive.
The Infinite Banking ConceptThis is the strategy that we have in place. What this strategy entails is funding your personal bank in whole life insurance policies. Then instead of going to a financial institution to finance your purchases, you take out policy loans. What this does is put you in control of the loan and you still earn interest on the cash value that’s within the policy.This enables you to recapture the interest that you would have paid to a financial institution. If you use this strategy alone, you will realize all the wealth that is paid to other banks.
Premium Cost is GuaranteedThe cost of the premiums paid to the policy will never increase. This is important, so I’ll repeat again.The cost of the premiums paid to the policy will never increase.The reason why this is important is because with term policies, your rates will rise over time. This is due to the changes in your health and age. As you get older, your chances of dying increases. Since the life insurance company takes on that risk, they increase the cost of premiums.With whole life insurance, the premium cost will stay the same as long as the policy is in force. Even if you are gravely ill, the cost will never change. It’s guaranteed.Bonus: As the years go by, the policy actually gets cheaper. What’s one of the eroding factors of money? Inflation. As time progresses, you are paying the premiums with inflated dollars, which means that the premiums get cheaper and cheaper..Look at the rate of return from one of R. Nelson Nash’s policies. (He’s the creator of the Infinite Banking Concept and author of Becoming Your Own Banker.) Notice how cheap his premium is and at his age. That’s inflation working to his benefit.
Premium Consists of Guaranteed “Cash Value” and Death BenefitThe premiums paid go towards increasing the cash value AND death benefit. But the key here is that they are guaranteed. Your cash value and death benefit can never decrease in value unless you start withdrawing the cash value from the policy.Let’s look at a 401k. The cash value amount in your 401k can increase. But, it can decrease because of the fluctuations in the market. You are not guaranteed any cash value amount in your 401k. You can literally lose everything that you have put into it.Your whole life insurance policy acts as a savings account. When you pay your premium and your cash value increases, it’s guaranteed. When interest is earned and added to your cash value, it’s guaranteed. The same applies to your death benefit.
Cash Value Grows Tax-AdvantagedWith a 401k, you are only deferring taxes. You will be paying taxes later once you start withdrawing funds from the plan.With a whole life insurance policy, you pay the premiums with after-tax dollars. The cash value grows with out taxation. You are only taxed after your withdrawals from the policy exceed your basis (the total amount that you put into the policy).However, there are strategies to get all of your money out, and the gains, TAX FREE!
Policy Pays a DividendWhole life insurance policies, also referred to as dividend paying, permanent insurance policies, pay dividends. Now, the key thing here is that these dividends aren’t taxed. They are actually considered returns of premium.For example, let’s say that you pay $1000 into the policy. At the end of the year, the insurance company looks at how efficient it was with your policy. Let’s say they earned 10% on your policy ($100).After deliberation, they decide to return $90 back to you (the $10 pays for administration fees and a contingency fund). This is not an actual gain. It is a return of premium, which is not considered a taxable event.And, a dividend paid to your policy does not lose value. It’s value is guaranteed because now it’s part of the cash value.
Option to Have the Insurance Company Pay Premiums if You Become DisabledYou can take advantage of a disability rider on the policy. In the event you become disabled, this rider has the insurance company continue the premium payments for you. You are no longer required to pay the premiums.Can your 401k do that?Can your IRA do that?Can any other of your qualified retirement plans do that?Adding this rider to your policy is another way to transfer risk away from you to somewhere else.
Provides Wide FlexibilityYou have the ability to do something special with the dividends. You can have the dividends paid directly to you. They can send you a check, no questions asked.Or, you can make those dollars work even harder for you. You have the option of having those dividends purchase additional paid-up insurance. Those dollars will buy more life insurance, provide a bigger death benefit, and earn interest.This will help you fight inflation. You have extra dollars growing your cash value and earning additional interest.
Can Borrow From Your PolicyMy wife and I did this recently to finish off the payments on our car. We do pay interest that does go to the insurance company. However, the dollars within the policy are still earning interest as well…compounding interest.Best of all, you have no obligation to pay the principal back. If you carry that loan balance to your death, the principal will be deducted from your death benefit.
Cash Value Can Be Used as CollateralBanks will accept the cash value within the policy as collateral. Unlike your car and boat, this collateral is appreciating.
Cash Value is Exempt from CreditorsThis is very important. We have encouraged our readers to protect their assets. Of course, life insurance protects the most important asset, you. The death benefit is in place to replace your Human Life Value in the event of your death.What some people don’t realize is that the money inside a whole life insurance policy is protected as well. In the event that you are sued, creditors can’t touch the money in your policies.The reason is because life insurance policies are meant to benefit someone else, a beneficiary. But now you understand how it can benefit you in your living years. So, take advantage of this feature. It’s another great way to protect your assets.Is your 401k protected from lawsuits?What about your IRA?Are any other of your qualified retirement plans protected?Unfortunately, they are not.Whew! What a list. I hope you’ve gained some insight on this dynamic product. It’s been around for over 200 years. But just having a whole life insurance policy doesn’t mean that you’ll become wealthy. Heck, you can say that about anything: stocks, real estate, gold, businesses, etc.It’s what you do with the product that can make it productive. I’m always reminded of this simple analogy.If you were to compete in the PGA tour, what would you rather have…Tiger Woods’ golf clubs or his swing?I know that Tiger could play better with a tree branch than me playing with the best clubs money can buy. Too much emphasis is put on getting the perfect financial products…the clubs. Often people fail to develop the right strategy and plan…the swing.Popular financial pundits, the Suze Ormans and Dave Ramseys, despise whole life insurance. As you can see, we have a different perspective. Study the living benefits. If you want different results, think differently.If whole life insurance made you queasy before, I hope I shifted your paradigm. Continue your education towards financial freedom. Keep learning and pretty soon, you’ll be able to swing like Tiger.
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