What does it take to insure a human life? Life insurance isn’t always a comfortable topic. Most of us are more comfortable ignoring the inevitability of our demise and overestimating the length of our stay in the mortal realm. However, none of us would purposely leave our family high and dry at that time, so having life insurance should always be a priority.
At Paradigm Life, sometimes we hear clients say, “I’m worth more dead than alive!” But they are sorely mistaken. When you consider the average life expectancy and potential for income over those years, you can grossly underestimate yourself. We always emphasize that you are your greatest asset and the money you can generate in a lifetime is beyond specific calculation. Because putting a value on having you around is hard, how do you set up insurance to guarantee your family can weather that storm?
Typically, when people purchase traditional life insurance they’re thinking that the only way to cash out and benefit from the policy is to actually die. In that case they’re purchasing peace of mind that family will be taken care of. But what if we could show you a way that offers a wealth strategy instead of just a death payout?
Term vs. Permanent
We’ve blogged about the differences in term and permanent life insurance before in How To Get Tax-Free Profits From Insurance Dividends. Term provides life insurance for a specific period of time (it’s usually cheaper than permanent) and permanent is just that—it provides life insurance for your whole life. If you set up a permanent life insurance policy the right way, you glean what we call living benefits, like these:
- • Cash value
- • Growth
- • Retirement
What do we recommend you do that’s different in setting up this policy? The death benefit is a secondary asset to the primary policy (definitely a paradigm shift from the way people typically view life insurance). The focus of the policy then shifts to provide the ability to use your assets while you’re alive. The structure provides the security of a death benefit, but allows you to focus on the cash value.
Cash value is the amount of value within any whole life insurance policy. After you put money into a policy, you have a “permission slip” to access liquid money and use it you need for short term purchases (up to the amount you put in). You can borrow and spend the money knowing that if something were to happen it would be covered, because the death payout covers any outstanding loans against the policy.
How does a policy loan work? How can you borrow money from your policy and still have money growing? When you buy a policy you are part owner of the insurance company—up to the amount you have in the policy. Your loan comes from the general fund of the insurance company, so all you do is request a check. Use it for smart purchases like:
- • Small business
- • Education
- • Vehicle
- • Real estate
Then use gains to pay the money back that you borrowed. Because when you have access to money you have more potential to make even more money. The more you can invest in yourself—the true asset. And again, if something should happen to you, the death benefit will pay the loan and your family will not bear the debt.
Traditional financial planning tells you to stockpile your cash in the stock market, wait and watch, and hope it will grow to be used later for retirement. Let’s rephrase: Your money is literally locked up (unless you pay huge penalties) and sits in an account until you’re at least 65 (heaven willing), where you take only a small sum at a time and hope it lasts until you pass.
With permanent life insurance and a cash addition, you have leverage. Even if you borrow from your policy, the rate of return on your cash value stays the same. The most unique feature is that the rate of return is not affected by your loan—doesn’t hinder growth, impede progress, or change the outcome of your policy. If you’re able to use your money while earning compound interest, you avoid what we call the silent tax, or inflation.
To summarize using your insurance policy as a financial strategy:
- • You are not depending on Wall Street. Your money is safer in less risky investments
- • Your money is liquid and you can borrow it at any time throughout the life of your policy
- • You’ll never worry about a credit check, risk evaluation, repayment terms
- • You have more control over your investments, because you have built a solid financial base
Wrap your head around that. It’s because the asset is the person—you.
Inevitably our priorities will change—as we get older we will decide to retire. The whole purpose of putting money away in an account is to generate a return and a future stream of income. Is the value of our life worth less when we retire? No, it is likely worth more. If you buy term insurance, it runs out right when you need it most. Your chief concern will be “making the money last.”
We want to show you how you can avoid this. If you enter into retirement with permanent life insurance with a guaranteed death benefit, you know that any assets you spend in your cash value will be replenished on your passing. And when that unknowable day comes and you pass on, the death benefit can fund your spouse’s retirement too—and that’s only one option for the funds.
Human life is the greatest asset we’ll ever talk about and cannot be quantified. If you set up insurance the right way you can grow your money, use it when you need it, and leave a legacy for your family. Education, lessons, and experience can be passed to your family and we are dedicated to help. Your legacy will not be only monetary; it will be a lifetime lesson in financial strategy.
To help you learn more about how these concepts are put into action we’ve created a FREE, extensive eCourse called Perpetual Wealth 101®. You’ll receive access to video tutorials, articles, and podcasts. It literally costs you nothing to become educated on this ideal financial strategy and start changing your wealth paradigm!
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