What Dave Ramsey and Suze Orman don't know about life insurance
Why do banks, corporations, and famous family dynasties own so much life insurance
Prior to about 12 years ago I had been a staunch supporter of never putting money into whole life insurance because that is what I was told by national “gurus” over 30 years ago. I wholeheartedly believed (as many of you do now) that if you need insurance you should buy term and take the difference in premium between whole life and term and invest those funds into mutual funds.
So when a good friend of mine sat me down and tried to show me a whole life insurance plan I was so opposed I almost would not listen. Many of you reading this will feel the same way and nothing I say in this article or in subsequent writings will change your mind. That is perfectly fine because you are entitled to your opinion just as I was entitled to mine. Thankfully my friend showed me how a PROPERLY DESIGNED whole life insurance policy works. I soon realized that the gurus in my early years and the gurus of today were correct for as much information as they had been given. The problem was their information was not complete.
Whenever I hear a financial consultant or even just a regular Joe (or regular Josephine) talk about less expensive premiums for term than I know they really don’t understand how this animal of PROPERLY DESIGNED whole life really works. Let me first explain all the benefits of a properly Structured high cash value life insurance policy:
1) Principal protection of your money so your cash value is not subject to market losses as with mutual funds and many other programs. When the stock market tanks again which is never a question of if but only a question of when, your money does not lose a dime
2) Guaranteed growth of your money every year. This will be interest rate driven based on the economy but your account will move forward every year regardless of what the market does. This is compound tax free growth and not “average rate of return” as with mutual funds
3) Dividends paid to policy owners are not taxable. Dividends are not guaranteed to be paid but many companies have been around over 150 years and paid out a dividend every year. That dividend amount will depend on several factors but boils down to how much profit did the insurance carrier make and that is the amount dividends are based. Those dividends are not taxable when paid to the policy owner properly
4) Both guaranteed growth and dividends are not taxable
5) Starting high cash value amount based on what you contribute into the policy. Whole life policies that are NOT designed properly will have very little cash value in the early years. Properly structured life insurance will have very high cash value percentages even in the first year of the policy and increasing every year
6) Access to your cash value at any age, at any time, and for any reason without taxes or penalty. This is a huge benefit of these types of policies which differ from your 401k and IRA that impose many hurdles to jump through to get access to your cash and if not paid back during a certain time and at a certain interest rate you are taxed and penalized.
7) Complete control of your money to either leave in the policy as a rainy day fund, invest in a great real estate deal, fund college education, retirement, or anything else you choose to do with the cash value be it personal, business, or investment
8) The ability to put in small amounts of money up to large sums of money depending on your financial situation. There is a widely held belief held by most financial professionals that life insurance is only good for the wealthy client. Not true, It is great for anyone who wants to get ahead financially be they a little guy or a big shooter
9) When accessed properly all monies can be taken out of the policy tax free for life. Unlike traditional 401k’s or IRA’s that give you tax deferral but make you pay tax in the future, the tax structure of life policies (in most cases) is like a Roth IRA where you pay tax on the money today but the growth and dividends are tax free in the future. But unlike the Roth IRA you have none of the same restrictions on access or use of the money and you have another arms length between you and Uncle Sam
10) Ability to use this account’s cash value to recapture lost depreciation on major purchases and interest and fees paid to banks. If you treat this pool of money inside the life policy like your own personal bank, you can loan it out to yourself and others to create wealth. More on this in future articles but suffice it to say for now that banking has been around in some fashion for thousands of years. Any business model that lasts that long is worth understanding and using to your advantage
11) Extra layer of protection from lawsuits and other creditors (always consult a good asset protection attorney and study the old OJ Simpson civil trial to find out why they could take everything but his lifetime income from the NFL)
12) This is a life insurance policy so when the insured eventually passes away there is a large sum of money left behind to whoever they designate as their beneficiary. These death payouts are tax free to the beneficiaries (subject to estate limits) creating tax free generational wealth. There is a reason famous family dynasties have been using life insurance for generations to grow and protect wealth
13) Easy access to funds for the rest of your life through the cash value in your policy regardless of credit scores and income. It has been said that banks only loan money to people who really don’t need it and there is some truth to this statement. Make yourself the lender and you don’t have to worry about the whims of banks and their underwriters
14) Once the policy is in place you have guaranteed insurance for the rest of your life. Many people assume they will be insurable for the rest of their lives. Nothing is further from the truth and just remember people you know who have been diagnosed early with very bad and even terminal diseases. Now you are not insurable for a new policy but if you have one in place and maintain the minimum premium you will have that coverage for your family for life. On many policies you can have put on for little to no charge an “Accelerated Death Benefit Rider” which will give you access to a large portion of your death benefit during your lifetime if you have a terminal or chronic illness
15) Ability to combine your life policy with the worlds of real estate, private lending, and auto financing to accelerate your wealth both inside and outside of the policy. Remember inside of the policy is tax free for life
When you look at all these benefits you will not find one type of other account or investment that has all of these benefits rolled into one system. Not a 401k, IRA, mutual funds, stocks, bonds, precious metals, real estate, crypto or any other account will have all these benefits. For a Free online class explaining these concepts and more even further, visit www.perpetualinsurance.com