What if I told you there was a sure way of building wealth with life insurance? A sure thing with the correct strategy. You could build wealth with life insurance in two types of life insurance: Term life insurance or Permanent life insurance.
But here is the caveat. There is only one of those that you can actually enjoy it alive. In this post, I dig deep into the life insurance rabbit hole and show how to use life insurance to build wealth.
Term Life Insurance For Building Wealth
This type of life insurance has an expiry date. Here you will set for example term life insurance for 30 years. If you don’t die during those 30 years and you get to the expiry date of the life insurance alive (I hope you do) you will have 3 options: renew, convert to permanent life insurance, or terminate the plan. In case you terminate the plan you will not get anything for it. If you renew you basically just started a brand new life insurance, so that one that you paid for 30 years, you will not get anything for it. Now if you convert to permanent coverage you will be able to reap the benefits of all those years you have been paying.
Permanent Life Insurance For Building Wealth
This insurance is the opposite of term insurance. This one is until you die. You can choose: whole life or a universal life plan.
This policy offer coverage for your entire life (hence whole life) and the savings can grow at a guaranteed rate.
Universal Life Plan
This plan will pay you in all your next lives (I am joking) this one will use different premium structures, with the earning based on the market performance.
How To Use Life Insurance To Build Wealth?
Ok, now are getting there. Now that we know the difference in insurance let me explain which one to use and how to use to build wealth. Permanent life insurance is one-way policyholders can accumulate cash value in addition to the death benefit. With the right strategy, you can use these funds to supplement your retirement income, pay your premiums, or take out a loan at a lower rate than banks offer.
But you might be wondering, how exactly does cash value accumulate in permanent life plans? The financial website, Investopedia, explains that as you pay premiums, the payment is split into three parts: one for the death benefit, one for the insurer’s operating costs and profits, and the rest for the plan’s cash value. The life insurance company typically invests this money in a conservative-yield investment. As you continue to pay premiums on the policy and earn more interest, the cash value grows over the years.
Accumulation Slowing Down?
It’s important to note that accumulation slows down over time. In the early years of your policy, a larger portion of your premium is invested and allocated to the cash value account, so the cash value can grow quickly. However, in later years, accumulation slows as you grow older, and more of the premium is applied to the cost of insurance.
Cash value accumulation varies depending on the type of policy. For example, whole life plans offer guaranteed cash value accounts that grow according to a formula the insurance company determines, while universal life policies build up cash value based on current interest rates.
Investopedia also advises policyholders to use the accumulated cash value in their plans instead of ignoring them. Don’t let the cash value that has built up in your policy go to waste; the cash value in your policy at your death goes back to the insurance company, not your heirs. With the table below, you can see how cash value accumulates in a $100,000 whole life insurance policy with premiums paid out of pocket starting at 35 years old for a non-smoking male.
|Policy year||Age||Annual premiums||Cash value||Death benefit|
Building Real Wealth With Life Insurance
When it comes to building wealth through life insurance, permanent life insurance is a solid option. It allows you to invest on a tax-deferred basis, meaning you are exempt from paying taxes on any interest, dividends, or capital gains on the cash value of the money you acquired unless you withdraw the proceeds. This is similar to the tax benefits you get with certain retirement accounts, including IRAs, 401(k)s, and 403(b)s. So, if you’re maxing out your contributions to these accounts year after year, investing in permanent life insurance for tax reasons may make sense.
My Individual Plan To Use Life Insurance To Build Wealth
First, this is personally what I do, and no financial advice. I am currently doing is having permanent life insurance for the amount that I believe I could get in my life by working hard, achieving my goals, having a work ethic, and constantly going at it. Finally, in that way, I can 100% guarantee that I will reach the amount I believe will be comfortable for my family and me to enjoy life at its fullest.
So No Life Insurance?
Second, I know life Insurance can cost some extra money that people sometimes don’t have at the end of the month. In addition, sometimes when you don’t have money to pay life insurance, there is when you really can’t afford to not have it. This is when you are in a situation where you probably will need more than the person that can easily afford the $50 Million life insurance like Wealth Managers and Hedge Fund Managers have. By the way, have you ever wondered how much do they make? Find out by clicking on the link for each one of them above! You cannot believe the potential income they have.
The Real Insurance You Need
Do you know what’s the insurance you actually need? It’s not any of those. Having life insurance is great. But what’s better is to make so much money on a monthly basis that you don’t even think about them. You have life insurance obviously but even if you die and life insurance does not pay your family they will be set for a lifetime or two. That’s the real insurance we all need. Now, do you know the difference between income and wealth? If not you got to know this before moving to the next step. Click here to find out.
Now What? Building Wealth Level 2
And again, If you already read all the above posts you are in a great spot for the next level. That is: Investing. You need to how to invest your money and who is better to teach than the best in the business? Click here to read the Insider Tips On Investing from Seasoned Investors.
Before You Go
Lastly, I would really recommend you to read the following:
Are you in your 20s: How to Build Wealth in Your 20s: A Comprehensive Guide
Oh so maybe your 30s: How to Build Wealth in Your 30s: A Comprehensive Guide
The 40s or above it is then: How to Build Wealth in Your 40s: A Comprehensive Guide
Those are that good! Thank you for your time I wish you a lovely day!
To Your Success!