Have you ever thought about using life insurance for wealth-building? It is something that more and more high-net-worth people are using to stack the deck in their favor when it comes to increasing returns and lowering their taxes.
If you are using a typical savings account to park your cash while you are saving for big expenditures such as weddings, educations, and automobiles, you are foregoing the benefit of the higher yields that cash-value life insurance policies can offer.
Given that borrowing and paying interest on money for big expenditures may be a costly way to buy them, some people will choose to establish a savings account to build up the finances over the course of time.
When you save money, just where do you save it? If you are like most people, you put it in a place you know that you can get access to at the point that you are going to need it.
When you save money for these larger acquisitions and urgent situations, you may be placing countless dollars in low-interest, taxable bank accounts.
Here’s the thing:
If you are generating 1% inside of an interest-bearing account when you could be obtaining 5% inside of a cash-value life insurance policy, you are losing out on 4% interest each year. This is also regarded as an opportunity expense, and it indicates that you can be missing tens of thousands of dollars or more in the course of your lifetime.
Along with low interest and low growth, you are furthermore obligated to pay taxes on the small amount you have actually acquired, which decreases your savings productivity even more.
Now this does not apply just to sizable acquisitions. You may well maintain money for unexpected emergency savings. You could be an investor or entrepreneur that rests on substantial sums of money, sitting tight to utilize it.
Cash-value life insurance is unparalleled in the benefits that it can offer.
The moment you insert cash-value life insurance into the situation, your savings dollars generate more money, and your tax burden is reduced. Essentially, it’s a much more clever approach to saving money.
The second concern is that when you pay cash for an automobile, for example, you commonly really don’t plan to replace the funds back into your savings on any sort of scheduled timetable. You just prepare for your next acquisition and save what you are going to need.
This stresses the actual value for money you are imposing on your own money may be small.
Anytime you obtain cash from a financial institution, do you anticipate that they are going to charge you interest? When you loan cash out, do you expect to get interest? Naturally. Yet, when you use your own money, are you putting no value on its interest potential? If not, why not?
This is the very reason why I strongly recommend utilizing loans on a cash-value life insurance policy. It assures that you are responsible to the cash you employ. It makes certain you never deplete your account to make a buy without any plan of always keeping that money flourishing. This requires you never to quit expanding your dollars. It simply makes you more responsible.
Here is an instance that illustrates:
Let’s pretend I have the business opportunity to invest $100,000 that is going to gain a 12% return or $12,000 in a year. If the capital gains rate is 20%, I’m going to owe 20% of $12,000 or $2400 in tax on the profit. This results in a profit of $12,000 – $2400 = $9600.
Let’s additionally say that I possess that money in my cash value life insurance policies, and I obtain the money from the insurance company at 5%.
Here is the math:
The investment presents a return of $12,000. 5% of the $100,000 or $5,000 of the interest is tax deductible. I will be taxed 20% on the remaining $7,000 that means I’ll owe $1,400 in tax on the profit. This makes my total gain $10,600.
Rather than a net 9.6% return, I’ve earned a net 10.6% return.
The other favorable part is that after the cash is paid back, the cash returns to an account where it is earning 5% rather than the small amount that it would otherwise produce in a regular savings account.
The moral of this story is that placing your money into a higher yielding savings vehicle like a cash-value life insurance policy lends itself to help make you financially smarter because of the responsibility it naturally renders.
In summary, cash-value life insurance is a financial tool with a disciplined savings benefit that can put you on the road to building real wealth. It has been utilized by wealthy banks, corporations and Americans for centuries and has stood strong in the face of some of the most difficult and challenging financial times in our country’s history. At the same time, it is also one of the least understood financial tools out there, and as a result, it is the most underutilized by the average American.