Economic inequality and how to financially protect yourself with whole life insurance

Economic Inequality: How to Financially Protect Yourself

Economic inequality, the unequal distribution of wealth and opportunity among different groups in America, is as prevalent now as it has ever been. The issue of equality in America has spanned generations, fueled nationwide protests, made its way to the Supreme Court, cost countless lives, won and lost elections, and continues to make headlines today.

How does one narrow the income and opportunity gap in a country with a rapidly shrinking middle class? When the chasm between the rich and the poor grows wider and wider, is it possible to financially protect yourself?

Economic Inequality & Wealth

Economic inequality is more than a measure of how much you get paid. While income inequality looks at how much you earn (including interest earned on investments) and wealth inequality adds net worth into the equation (real estate, businesses owned, etc.), economic inequality also takes opportunity into account. Does everyone have the equal opportunity to be wealthy?

Certain social justice issues come into question when discussing equal wealth opportunity. Is the cost of college education prohibitively high for low income families? Does systemic racism prevent an employee from moving up in a company, or getting a job in the first place? Will the gender pay gap make it harder for women to earn a fair salary? While the inequality war wages on, there are proven habits of wealthy people that everyone can adopt for a more secure financial future.

5 Proven Habits for Getting Ahead Financially

  1. Set goals and prioritize achieving them. It’s not enough to want more money just for the sake of having more money. At the end of the day, money is nothing more than a tool that signifies an exchange of value. It’s up to you to determine what is of value to you, what value you can bring to others, and to outline a clear path forward where your compensation matches your contribution to society.
  2. Stick to a budget. Wealthy people stay wealthy by not overspending. Even billionaire Warren Buffet famously stuck to using an old flip phone until 2020 and regularly eats McDonalds (even paying with coupons, according to Business Insider).
  3. Increase your cash flow. There are only so many hours in a day, which translates into only so many hours to make money. But there are passive ways to grow wealth, including investing in real estate, stocks, and index funds, blogging and ebooks, and moving savings into accounts like a Wealth Maximization Account™ where it can earn significantly more interest.
  4. Network. A lot of people cringe at the idea of networking. The trick in doing it successfully is having something to bring to the table. Know your unique skill set and focus on using it to help others; your expertise will be reciprocated and result in greater opportunities down the road.
  5. Rethink retirement. Most wealthy people never truly retire. They find ways to create a harmonious work/life balance by doing work they love on their own schedule. This approach has two benefits: it can allow you to live a retirement-like lifestyle sooner than age 65 and it allows you to earn more income throughout your retirement years.

The Politics of Economic Inequality

Not surprisingly, Republicans and Democrats blame different factors for economic inequality in America. According to a recent study by Pew Research Group, 61% of Americans think our country suffers from economic inequality. And while inequality is an especially hot topic in an election year like this one, there is much disagreement on how to achieve financial fairness for all.

Reasons Economic Inequality Exists – REPUBLICANS

In the aforementioned Pew Research poll, these are the top 5 reasons Republicans say there is economic inequality in America:

  1. The different life choices people make.
  2. Some people work harder than others.
  3. Problems with the educational system.
  4. The growing number of legal immigrants working in the U.S.
  5. The tax system.

Reasons Economic Inequality Exists – DEMOCRATS

In the aforementioned Pew Research poll, these are the top 5 reasons Democrats say there is economic inequality in America:

  1. The tax system.
  2. Not enough regulation of major corporations.
  3. Some people start out with more opportunities than others.
  4. Discrimination against race and ethnic minorities.
  5. Problems with the educational system.

It’s easy to see why America has such a hard time solving inequality; while we agree it’s a problem, we don’t agree on the reasons it exists. There are only two common factors that seem to cross the political divide: the educational system and the tax system.

Closing the Education Inequality Gap

The cost of a formal college education in America is a huge financial investment, even if you fall into the upper class. For many, the only hope of realizing the college dream is via scholarships, grants, and student loans. And college students who are paying tuition themselves but are children of wealthy parents can often be at a disadvantage when it comes to qualifying for tuition assistance.

Tuition, much like other major purchases in America (cars, homes, etc.) is leveraged. The standard narrative teaches: Go to college because college leads to a career with healthcare and retirement benefits. College is expensive, but there are student loans available that will pay for the whole thing. Typically, the people supporting this narrative are the ones who have the most to gain. The college loan industry is huge! If government-backed college loans went away, the for-profit business model would be destroyed and tuition would drop.

Until that day happens, there are better ways to get an education. Not every good career requires a college degree. In fact, this recent article from Glassdoor shows that many prestigious employers, including IBM, Apple, and Google, no longer require college degrees from job applicants. They’re more interested in your unique skill set, certifications, and experience.

“When you look at people who don’t go to school and make their way in the world, those are exceptional human beings. And we should do everything we can to find those people.” —Former Google SVP Laszlo Bock

So if online courses or on-the-job training are available to you and more affordable than a 4-year degree, you can set yourself up for just as much success and economic opportunity as a college grad without the hefty debt, arguably putting you at a financial advantage in terms of closing the income inequality gap.

That said, there are certain jobs that require a college degree. If that’s your chosen path, or you’re footing the tuition bill for someone pursuing a formal college education, there are options beyond student loans or 529 college savings plans. One such option is cash value whole life insurance, which includes a built-in policy loan feature.

The Financial Protection of a Policy Loan

The typical financing structure college students apply for is designed on deferred payments that don’t go into effect until the student completes or abandons their education. The interest on the loan, however, goes into effect immediately and continues accruing until it’s paid in full. Once the borrower starts making payments, they are usually only the minimum required, taking years, if not decades, to resolve the full balance.

This is problematic for a number of reasons; two of the more obvious being:

  1. The dramatically higher amount the student will pay in comparison to the original loan value
  2. The other places that money won’t be going as they try to tackle the debt over the coming years

When utilizing a policy loan instead of student loans, you have the ability to tailor how and when the loan is repaid. You can choose monthly, quarterly, annual, interest-only, or deferred payments, and you can alter the payment frequency at any time, decelerating or accelerating repayment to work with your financial goals.

For the 2019-2020 school year, student loan interest rates are clocking in at:

  • 4.53% for subsidized and unsubsidized undergraduate loans
  • 5% for Perkins loans
  • 6.08% for unsubsidized graduate loans
  • 7.08% for Direct PLUS Loans

In many cases, borrowing against life insurance instead of using student loans provides a lower interest rate for the borrower as well. Less interest and non-deferred payments can ultimately cut thousands of dollars and years of monthly payments from the debt sheet.

And unlike the repercussions for defaulting on a typical student loan, a life policy loan offers protections and options where other loans offer punishment.

Achieving Equality With Tax Advantages

One of the ways the wealthy grow and maintain their wealth is by utilizing tax laws in their favor. Hundreds of pages long, the IRS tax code is tricky to navigate, at the very least. Upper income individuals leverage tax attorneys and CPAs to help them keep more of their money out of the hands of the IRS, but that doesn’t mean you have to be wealthy to benefit from tax advantages.

Whole life insurance policies offer a variety of tax advantages not found in typical qualified plans like a 401(k) or IRA. And individuals aren’t the only ones using this type of financial tool. Large companies and banks rely on insurance policies, listed on their books as Tier 1 Assets, to help them avoid taxes and retain liquid capital. Whole life insurance offers a variety of benefits above and beyond a death benefit. Referred to as living benefits, they include:

  • A guaranteed rate of return
  • Asset protection
  • Liquidity via policy loans and withdrawals
  • Protection against market volatility
  • Cash flow in retirement
  • Legacy
  • Reduced tax liability

Specifically, whole life insurance offers these tax advantages:

  • Tax-free policy loans
  • Tax-free growth of cash value
  • Tax-free death benefit to your beneficiary
  • Tax-free retirement income
  • Estate tax exemptions
  • Earns interest and dividends tax-free

The impact of these tax advantages over a lifetime can drastically narrow the economic inequality gap and leave a legacy for future generations, helping to ensure they’ll be better off financially. Whole life insurance helps create momentum towards continued financial security.

Conclusion

The issue of nationwide equality will be a pivotal factor in this election year. Regardless of your political affiliation or social beliefs, there are steps you can take right now to protect yourself financially from economic inequality. Adopting the habits of the wealthy, including setting up whole life insurance policies for you and your family, helps make education more affordable, lowers your tax liability, and provides future generations with a leg up over economic disadvantages.

At Paradigm Life we can customize a policy to fit your financial situation. Our expert Wealth Strategists are available to answer your questions and show you customized illustrations, outlining an individual plan of action to help you achieve your goals. Schedule a free consultation to explore your options, no strings attached.