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Can you use life insurance for wealth accumulation? • The insurance problog

When most people think of life insurance, they tend to think of it in its most basic form. The life insurance policy pays a death benefit to one beneficiary or several beneficiaries when the insured of the insurance dies. But many have learned the powerful benefits of using life insurance for wealth accumulation.

If you spend any time reading, watching or listening to personal financial advisors, you will hear about all the hassle of using life insurance in this way. Often, these people refer specifically to whole life insurance or cash life insurance more generally in their rants.

There are some legitimate reasons for their views. But in most cases that we see in our practice (selling life insurance to people across the United States), the problems that most people have throughout their lives, an indexed universal life, or other types of cash value life insurance are caused by poor insurance. In other words, life insurance policies work really well for wealth accumulation when they are set up right from the start. The reason why people push against it is mainly that they only have experience of a poorly implemented version of it.

It's unfortunate because it's a bit like deciding that you think cars are just awful. After all, you were one of the unfortunate souls who bought a Yugo back in the 80's.

Is life insurance considered an asset?

Before I sat down to write this article, I will admit that I never really considered this simple question. It seems a bit ridiculous, even though I write this on the blog, but it's still true. To answer the question clearly, yes, life insurance is considered an asset.

Two facts make it true and they are:

    1. The IRS absolutely believes that the death benefit (or face amount) in the life insurance policy is an asset. If you die and you own a life insurance, the death benefit is included as part of your property. This means that when the final calculation of all your assets is combined to calculate whether you can have a property tax debt, the income from your life insurance is absolutely included as part of the calculation. Now I know that some sharp people will read this and say to themselves, "Yes but …" and they are right, there is an exception of various kinds. And that is, if the life insurance that insures your life is not owned by you but by an irrevocable life insurance company (ILIT), the income from death benefits is not included as part of your property. How it works is another discussion for another day or you can go over and read this article which goes deep into life insurance and taxes.
    2. Bankers believe that the cash value of a life insurance, in particular a dividend-paying (participation) whole life insurance. Why am I saying this? Many banks are willing to lend to you and assign the cash value of your policy as collateral for the loan. In fact, some of our customers do, so we know the process. Bankers who understand the financial stability of mutual companies that issue dividends or participate in full life insurance are more than willing to set up this arrangement. In fact, many banks own very large cash value life insurance policies themselves – bank-owned life insurance policies (BOLI). The reason they do is a deeper discussion. If that interests you, check out this page at the Office of the Currency Controller website.

There may be more evidence pointing to the fact that some type of cash life insurance is on the asset side of your balance sheet but the two proofs are pretty good to begin with.

The factors that make life insurance ideal for cash accumulation

This is not intended to be an exhaustive list in any way. There are dozens of factors that can make life insurance (whether whole life or universal life) ideal for accumulating wealth. But some of the most common that come up again and again with our customers and potential customers are:

    • The cash value remains stable and earns a steady return. Yes, the total return (internal return) can vary slightly over time depending on the dividend interest for dividends of the entire life insurance and interest credits in an indexed universal life insurance but if you make premium payments, your insurance will accumulate cash at an increasing rate over time. When you need it or when you want it for the case, the cash will be there.
    • Life insurance's cash values ​​remain tax neutral as long as they are reached correctly. It is not difficult to stay away from tax problems here, it is imperative that you pay attention to what you are doing and it really helps to work with a skilled agent who can guide you. But one of the things that many customers like is some certainty if the tax rates move higher over time. There are many different opinions about the direction of tax rates, but deficits are increasing and someone will have to pay for it. The logical conclusion for many is that tax rates are going up. Cash value life insurance has tax-deferred growth and tax-free access – again, as long as you get access to the money through insurance loans or a withdrawal up to your cost base. What is preferred should be a discussion with your agent and depends largely on the reason why you want access to the money.
    • The death benefit pays your beneficiary the income with any income tax. I've already discussed this above but it's worth repeating. For most people who will not own a property that is subject to federal property tax, the proceeds of life insurance death will be transferred to your designated beneficiaries free taxes.
    • Finally, remember that you always have access to the majority of your cash value in the form of insurance loans. You do not have to be 59.5 or need any financial difficulty to tap it. It is a very simple process to call the life insurance company and make a request. Normally, you will have the money electronically deposited in your bank account within a few days depending on the company. When we talk to your customers and potential customers all the time, it is one of the assets that you work a little to create and understand in the front, but it is very simple after that. You fund the policy with the right design and it will collect cash that you can access whenever you want, will grow predictably, not dance around and give you a pool of tax-free capital to use at your discretion. [19659018] If you want to follow a policy for yourself, use our contact form to send us a message. We will be back as soon as we can!

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