Have you ever wondered if life insurance is an investment? I know many are under the idea that life insurance is only necessary for your working years, but if we are alive then don’t we have a responsibility to protect the loss of our life for those we love and care for even after we stop working? I believe we do and that using life insurance that only serves us during our working years without creating a lifelong asset a the same time is a short-sighted viewpoint.
Life insurance as an investment
How do you turn life insurance into an investment you might ask. Well, many have heard of whole life insurance. Yet many have not considered using it AS an investment vehicle.
For instance, you can build cash value with your whole life, and then eventually that cash value will accumulate to the point of being usable for distribution much like a retirement account, or annuity in that you get monthly income from them.
Now if you do nothing but build this policy to that point it will be an additional income source for you that can supplement any retirement income or social security income you receive.
Using other investments with life insurance
If you create a passive income stream in addition to this whole life policy then you can double the income cycle to the point that it starts building itself.
For starters, you put money into your whole life policy on a yearly basis. This helps to reduce the expenses as much as possible, in addition, make sure the policy is designed for maximum cash value, usually meaning the death benefit is not super large. What this does is reduce the life insurance companies’ expenses even further and gives you the most cash value growth.
Depending on how much you put into the policy it may be possible to almost immediately withdraw or loan against that cash value. This then is when you can start looking for investment options that generate income. By finding an investment that pays more than the interest you are paying back into your policy you are winning outside of it as well as within it.
You then pay yourself back a part of the income the investment is earning. This then makes it so the investment is paying for the loan against the policy, and with enough investment income, you can fully pay for the policy and policy loans on a certain monthly basis.
Given enough time the life insurance investment will get to the point where the cash value is so big that you cant put more money in it without affecting its tax-advantaged status. At this point, you now need another policy and you can either use the existing one to pay for the new one or take personal income from it, all while repeating the process with the new policy.
Look at this article on how to gain financial freedom with passive income and then contact to get started.
Other ways life insurance can be an investment
- Dynasty wealth creation
Most people don’t worry about transferring large sums of capital from one generation to another. If you are wealthy and want to keep that wealth passing down from generation to generation you need to figure out a way to keep it moving without being nickel and dimed to death by taxes, transfers, and other fees.
Some families do so with the use of trusts, however, those entities have the above fee problems after a certain dollar threshold of about $11 million(I know the tough problem of have-your heart bleeds for them). So generation 1 sets up a GST(generation-skipping trust) and generation 2 lives off the interest from the money then generation 3 receives the money to live on later.
When planning a generation-skipping trust, many people will use life insurance as a solution to the problems that can sizably reduce transferred wealth. Life insurance is great because it will pay a large death benefit when the individual passes away and that income is totally tax-free to their heirs (like it is for all of us).
Instead of putting the $11 million dollars into the trust, one could instead do a single premium life insurance purchase, which will be for more than the initial investment. The death proceeds could then go to a trust that will pay generation 2 from the interest and still go to generation 3 when generation 2 passes away. If each family member were to begin doing this then you can see how dynasties are created and continue over time.
The story about how long has life insurance been around is interesting, check this out to learn more
- Supplement retirement
Instead of either example above, perhaps all you want to do is go to work, come home and be with family. Maybe you don’t have time to deal with investments, well that’s ok. For some, this will be the case and we thank all that spend 12-18 hour days as electricians, truck drivers, pipefitters, and other high-labor jobs.
For some, they can simply pay into their whole life policy and let it grow over a 20 or longer-year period. After it grows to a high period and/or when you want to take the income you can convert the policy to an annuity for example or some other form of policy that suits your needs.
This is great because in your later years you can use it as a supplement to a pension(which is rather rare to have now), social security, 401k, IRA, or ROTH IRA income. You can structure this income so that it benefits you in several different ways. You can take it as income just for yourself, or you could have the income slightly less per month but end at the death of both you and your spouse, thereby increasing how long the income is good for.
- Income protection
Along with having a cash value component on your whole life insurance investment you can protect your family from loss of income due to disability or illness. Using the proper riders you can protect from the possibility of not being able to work due to getting sick or injured.
Disability riders generally provide a percentage of income but they also have a slight increase over time to adjust somewhat for inflation. Having this rider will allow the injured individual to focus on healing rather than their lack of income. In addition, it helps to ensure the rest of the family can meet at least most if not all their monthly expenses.