Benefits of Whole Life Insurance - From Peace of Mind to Financial Independence
Let's talk about Whole Life Insurance Investments. They aren't the most glamorous financial tool around. They're safe and dependable and tend to get overlooked by consumers bedazzled by the promise of high investment returns. But if the last few years have taught us anything, it's that safe and dependable are the way to go. And, in fact, the benefits of participating whole life insurance are numerous.
Safety First
To begin with, whole life insurance investments are safe. Historically, life insurance companies have demonstrated superior financial strength and investment track records than banks and other financial institutions. There are many reasons for this. The professional money managers working for life insurance companies do not chase performance like most hedge fund and mutual fund managers. They are not looking for a quick return on money; They are looking 5, 10 and even 20 years down the road. These companies invest in very safe financial instruments such as bonds, and they also diversify by industry, maturity & geography. This keeps costs and risks very low.
Whole Life Insurance investment portfolios are structured, conservative and regulated according to the state in which they operate. State insurance commissioners in each state mandate reserve pools, and guaranty associations are in place to protect policyholders against a company default. Additionally, whole life investments are protected through re-insurance. Life insurance companies willingly purchase coverage from re-insurance companies in order to provide even more safety to their policy holders.
Why Pay Taxes?
Whole life insurance offers many tax benefits to policy holders. Cash values within your policy accumulate free of tax. Withdrawals from your policy can be taken tax-free up to your basis, or the amount of money you have contributed to the policy. If you purchase a dividend-paying whole life policy, distributions from your cash value via personal loans are also tax free. Additionally, the death benefit proceeds pass to your heirs income tax-free, and if structured properly, life insurance proceeds can be received free of estate taxes.
All Whole Life is Not Created Equal
Participating whole life insurance policies offer additional advantages over other types of whole life insurance investments. A participating whole life policy will pay dividends to its policyholders based on the company's annual profits. Premiums in a participating whole life contract are guaranteed to remain level throughout the life of the policy, and once dividends are declared they cannot be taken away. Cash values accumulate within your account, and you can access this cash while you're alive--tax free and penalty free. And, of course, your beneficiaries are guaranteed to receive the death benefit.
Whole Life insurance policies are considered a contract and act as legal wills unto themselves. It is simple and easy to change beneficiaries and divide proceeds without going to a lawyer. And because life insurance policies are able to bypass the probate process, your heirs can avoid the enormous costs and fees often associated with an inheritance.
Several other benefits are associated with whole life insurance policies, including:
o Accelerated Death Benefits -- receive up to $250,000 of your death benefit while alive if you are diagnosed with a terminal illness.
o Guaranteed Disability Provision -- ensures that your base insurance premium continues to be paid by the life insurance company if you become permanently disabled.
o Long-Term Care Riders -- provides for payment of long-term care.
o Guaranteed Income Options -- turn your cash values into an annuity that will guarantee a lifetime stream of income.
Some of these benefits are available by rider and will vary by policy. You will need to check with your insurance provider to see if these benefits are available to you.
Financial Advantages of Participating Whole Life Insurance
Above and beyond their traditional benefits to policyholders and heirs, certain life insurance policies lend themselves to the idea of Infinite Banking. Participating whole life policies are especially suited for this concept.
In a participating whole life policy, you build cash value within your policy by both paying your premiums and collecting dividends. Typically, there is a guaranteed growth of about 4% built into these policies. This income growth is tax-free. What the Infinite Banking system does is maximize your ability to access the cash value that has accumulated within your policy, allowing you to enjoy your money now and still leave a financial legacy for your heirs.
By using your participating whole life insurance as a personal bank, you can reap many financial rewards. By accessing your "bank" you can lend money to yourself. You set the loan amount, the interest rate and the payment schedule. When you pay the loan back you pay yourself--with interest. So you are financing and making money off yourself, instead of paying that money and interest to a bank or other financial institution. As an added bonus with policy loans, the cash values within the policy will continue to earn the interest that has been guaranteed and, depending on the life insurance company, may earn dividends on the entire pre-loan amount, as if the money had never been borrowed.
Unlike with IRAs, a participating whole life policy used for the Infinite Banking concept is not capped by the government or restricted by your Adjusted Gross Income. You are encouraged to make loans to yourself, and in fact, you will actually make more money within your policy if you do. One of the most important reasons this works is because of the way the life insurance loans are structured. They are similar to home equity lines of credit. You only pay interest on the outstanding amount. Therefore, every payment back to the policy that you make reduces the overall interest expense and results in fewer total payments when compared again to a traditional loan. Fewer payments means saved money. By completing the cycle (making all your payments as originally scheduled) the policy will grow much much larger. Cash values within your policy are completely liquid and you can use them in whatever manner you choose. There are no fees or penalties for using the funds.
Whole Life Insurance investments offer guaranteed growth and can cushion a family from the uncertain financial trials that are a part of every life. By using your participating whole life policy as an Infinite Banking system, you can build private capital that provides a tax-free source of income. You will no longer need to turn to traditional forms of financing to live your dreams or handle your financial emergencies.