Getting life insurance for your family’s future financial security is a huge benefit but did you know that people who know the intricacies of life insurance system also use it to generate wealth? If you also want to know how millionaires do that, then go through our comprehensive guide to get enlightened within a few minutes of reading. Let’s get started…
The Three Elements of Wealth Creation
To build capital through insurance, you first need to understand the three basics of wealth accumulation:
- Compound interest
- Safe, positive leverage
- Tax-free accumulation
Millionaires know how to build their wealth following these three basics of wealth accumulation and here’s how you can do it too.
Building Wealth through Permanent Life Insurance
Permanent life insurance is permanent, as the name suggests. This means that you’ll have your premiums with you until you die, if you pay them monthly. Your heirs will receive a disbursement while you’re alive and after you die, hence, generating a cash value. Here’s how you can build wealth like a millionaire with permanent life insurance policy, which is whole life insurance in most cases:
- Liquidity: One of the smart ways to make money like millionaires is liquidity, which means the ability to get up to 90% of your cash value at any moment, through two methods:
- Take Out Cash: You can technically make several partial withdrawals from your policy if it has substantial cash value and use it to add to your income. Although it cuts death benefit for your legatees but if it’s your intention to use these as fund for your retirement then perhaps it’s a smart way to produce capital.
- Take Out Loan: Tax-free loan can be deduced from your capital that has built up over the years after paying interest, which is much lesser than charged by other lenders. As it is a private transaction between you and the insurer and not reported to any credit bureau , it will never appear on a credit report . Even paying back the loan can be optional at some instances but not doing so decreases the cash to take out in future and disbursement value that you leave for yours heirs. By becoming your own banker through this policy, you can use your cash value for paying back loans while keeping profits or investing in business. The lack of a set repayment schedule allows you to use loan money for an investment or business that might need some time to mature.
- Dividends: Mutual life insurance companies (owned by policyholders) pay dividends to policy owners with participating policies, if their investments perform well. They keep their expenses down which results in profits later on.The dividends are dispensed in different ways i.e., as cash, or as ‘paid-up addition’ which provides the chance to purchase more coverage. The paid-up addition operates as a policy-within-a-policy, generating its own interest-earning cash value. Millionaires utilize these dividends as a way of growing their cash value with no effort.
- Stability: While increasing cash value, you also need to secure them during market changes. Whole life insurance isn’t disturbed by market turbulences unlike other policies and the cash value remains safe because it gets locked in with a guaranteed interest rate.
- Use Cash Value to Pay Life Insurance Premiums: If the life insurance policy has really surged in value in the previous years, and if money is not too tight but you are finding the payment of premiums difficult, you could pay for them with the policy’s money. This way your policy would keep going and your beneficiaries also receive a payout after you expire.
LASER Funds Are Beyond Traditional Retirement Plans
Short for Liquid Assets Safely Earning Returns, the LASER Fund, is a type of permanent life insurance, based on Indexed Universal Life insurance (IUL) which rich people use under IRS (Internal Revenue Service) tax regulations. This policy allows them to amass cash value through the stock market index performance, without directly investing in the stock market. Thus, this strategy is also considered highly effective for building a tax-free wealth during retirement.
Policyholders can fund the policy as fast as possible within the tax rules limit i.e., typically 4-7 years. This way, your money grows tax-deferred, as you can withdraw income tax-free capital from your policy and in case of your expiration, the death benefit can be transferred to your legatees again, free of income tax. Millionaires generally use that capital to start a business, purchase land, etc. Additional benefits include:
- Easy access to their capital whenever they require.
- Historically 5% to 10% returns with a 0% floor in unstable markets.
- Initial overfunding to substantially enhance your cash value in a short time.
- Guaranteed safety provided by insurance companies plus the protection of principal with 0% floor during economic recessions.
Final Advice!
Building up an insane amount of money with life insurance is not a secret anymore as the guide explains the whole process in detail. However, you might want to know several other things about life insurance policies that suit your other immediate requirements or fit your future objectives. You can contact our insurance agents at Pryor Enterprises Inc. and express your concerns. Our friendly and experienced agents can answer all your queries in detail to help you make an informed decision for your and your family’s financial future.