How Millionaires Build Wealth Using Life Insurance
How to Use These Six Advantages to Build Wealth
Based on these six advantages, it’s not hard to see how millionaires build wealth using life insurance. You may see a common strategy discussed online, called “infinite banking” or “be your own banker.” Here’s what that entails:
Hedge against higher-risk investments. Whether you overfund your account or not, you’re socking away money in a place where it’s protected from loss, with a guaranteed interest rate. Your cash value is a financial asset that adds to your net worth – and isn’t affected by the stock market.
Be your own banker. Borrow against your cash value to make large purchases or investments. This is often less expensive, interest-wise, than obtaining a traditional loan through a bank. There’s also less paperwork and zero need to qualify. Most insurers let you borrow against 90% of your cash value. It’s up to you to make sure you always have enough left in the policy to pay for the cost of the insurance; if not, you risk lapsing the policy. Technically, you don’t have to repay these loans, although it’s recommended to stop accruing interest charges. When you pass away, the insurer will deduct any outstanding amount you own in loans and interest before paying the death benefit to your beneficiary(ies).
Transfer generational wealth. Cash value aside, the life insurance death benefit is a way to ensure you pass tax-free wealth to the next generation. You can leave the money to any number of beneficiaries, including entities like trusts, as well as specify a percentage each beneficiary should receive. Your beneficiaries won’t have to pay tax on that death benefit and it doesn’t have to go through probate. You can use the death benefit to leave your children an inheritance or, if your estate has passed the estate tax threshold, work with a financial advisor to ensure the death benefit will give them enough to pay that estate tax. That way, they won’t have to sell items in their inheritance – homes, cars, artwork, jewelry, etc. – to pay the taxes.
To sum up how millionaires build wealth using life insurance, it’s a matter of using their cash value as a source of funds for other investments. Without the hassle of banks and applications, they can access a continually growing source of funds that replenishes itself through dividends and paid-up interests.
Rather talk to a real person about life insurance as a financial tool? Call us at (800) 521-7873 and let our licensed advisors talk you through it. Or click the button below to start with a free term life quote!
Always consult a financial and tax professional before making your investing choices. This article is for informational purposes only and should not be used as tax advice.
