Occasionally I find a really good restaurant I like. When I do, I rave about it. Sorelle Italian Bistro[i] in Campbell, CA (near San Jose) is a small family-owned restaurant I love. The authentic Italian fare comes legitimately from the founder Francesca Rude’, hails from Tricarico, Italy. There’s nothing on this menu I can’t endorse, and certainly the lasagna is the best I’ve ever had. If my wife loved Italian food as much as I do, the battle for my waistline would surely be lost.
Maybe you don’t like Italian food? I won’t judge. But you still could look at the menu. Maybe you’ll enjoy a dessert item! But if you do like Italian food, you can enjoy a main course and hopefully have room for a treat too (shared of course). Life insurance can be like that – it’s an AND asset, giving you more than just one thing.
So, like Italian food, I’m excited to share about life insurance. In addition to protecting my income production for my family, I found I’m able to augment my retirement savings with tax-free distributions! Once I discovered this, I wanted to share it as a potential solution for others too. But know this – just like not all Italian restaurants are excellent, not all insurance agents know how to properly design a policy for you.
When a tool is misused or not well understood, it is often shunned. I suggest permanent insurance[ii] is maligned and underutilized for these reasons. Detractors offer a pat answer, “Buy Term and Invest the Difference.”
Are one-size fit all recommendations appropriate in the finance world? No. Also, diversity is important when you are handling your finances, so be sure to check out your options.
In case you didn’t know, you are unique[iii], just like everyone else. My point being, there isn’t one right answer for everyone. For many young couples with children it makes sense to use a combination of Term and Permanent insurance. This is due to the affordability of Term and the many years of earning potential to protect. When retirement planning becomes important, that permanent life insurance may be a key asset to leverage.
Here’s a summary of permanent life insurance policy benefits (with details following):
- Lifetime death benefit – protects your family’s income needs; may fund your legacy plans.
- Liquidity – access to accumulated cash value for any reason through policy loans or withdrawals.
- Living Benefits – advance of a death benefit, typically for a critical, chronic or terminal illness.
- Legal tax advantages – tax-free growth and – tax-free access of account value through loans.
Lifetime Death Benefit. Permanent policies come in two basic forms: Whole Life (WL) and Universal Life (UL). Each has a variety of configurations. Regardless, these policies are intended to provide a death benefit protection for the entire life of the individual. In contrast, term policies[iv] have an ending with no cash value.
Permanent policies are often referred to as “Cash-Value Life Insurance” (CVLI), because cash can accumulate as a balance within the policy’s account. This leads to the next benefit: Liquidity.
Liquidity. Withdrawals and policy loans provide you with easy access to cash for any reason. Properly designed permanent policies build cash value over time, which can be withdrawn or borrowed via “policy loans.” Interest rates on these loans are often lower than the interest rate credited to the policy account value. Also, these loans may simply be paid off with the death benefit of the insured, which is how the accumulated value may be used in retirement.
Living Benefits. In addition to easy access to cash, there are other benefits available while the insured is living! Carriers are now routinely adding the option to take an advance on a portion of the death benefit for s critical, chronic or terminal illnesses (perhaps helping with long-term care costs).
Legal Tax Advantages. But wait, there’s more! Account values in permanent policies grow tax-deferred. And, if the growth in the policy is accessed via policy loans, the cost of which is more than made up in the tax-free access. This makes it a great choice for saving up money for retirement, or even used to receive a non-standard compensation benefit from a current employer. See this Sport-Illustrated story [v] about former NFL and current Michigan University coach Jim Harbaugh.
Life insurance is an incredible AND asset. Each of the above points individually have value, and yet together they are even more powerful.
I’d love to explore with you the role life insurance may play in your wealth plan.
Schedule an introductory chat with me via my calendar: https://Calendly.com/Southard
Thanks for reading!
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