When most people think of life insurance, they are often thinking about term life insurance. Term life insurance is used to cover death risks in a given time frame, and typically comes with a higher death benefit and has lower premium costs. However, there’s an alternative to term life insurance.
Whole life insurance differs from term life insurance in the sense that it is designed to be in effect for your “whole life.” Easy to remember, right? Both term and whole life insurance products have a cost of insurance associated with the risk of death based on an individual’s health, age and tobacco status. Aside from the length of time the policy is in place, the main difference between term and whole life insurance is the “cash value.”
When used wisely, a properly structured whole life insurance policy can provide sound, proven results. Using an insurance-based financial strategy can fulfill various planning goals including allowing for the build-up of cash value, competitive earnings on the cash value, and flexibility for all of life’s “what-if” moments.
Here’s how investing in a properly structured whole life insurance policy can help you grow generational wealth reach your retirement goals.
Pay Less for the Policy Over Time
Whole life insurance is considered an insurance-based financial strategy for retirement planning. This type of policy is designed to collect an extra premium amount in addition to the insurance costs. That extra premium is dropped into a bucket called “cash value.” This cash value is on loan with the insurance company and is then invested in their general fund. Once invested, the funds begin to earn interest which becomes part of the policy’s cash value.
By utilizing the policy’s cash value, the dividends and return on the cash value can offset the need to pay future premiums. Later in life, you can then choose to reduce or stop making premium payments all-together. This option can reduce your financial burden during retirement allow you to allocate funds elsewhere if you so choose.
Whole Life Insurance = The Infinite Banking Concept
Why pay a bank interest to finance a car or a home when that interest can go toward your own policy? In a typical banking scenario, a person must apply for a loan and provide a plethora of supporting documentation to prove creditworthiness. With a whole life insurance policy, the cash value is ready at a moment’s notice and the policyholder can borrow or withdraw those funds at any time without any questions asked. This is also known as the infinite banking concept.
The infinite banking concept is great when an emergency strikes and you need access to funds quickly. In those cases, the flexible repayment terms are a huge benefit. If necessary, you can skip a month or two, or even a full year, without worrying about creditor phone calls or damaging your credit score. Just remember to practice discipline and begin paying yourself back—with interest—once you’re back on your feet.
Planning for Retirement Requires a Sage Wealth Strategy
Keep in mind that whole life insurance isn’t a short-term investment product and shouldn’t be considered for a quick gain. Rather, it’s an investment over time. The premium amount can be customized based on goals and needs, and the cash value benefits come with time if you put in the work now. Careful consideration of premium payments and slow initial growth should be considered when investing in whole life insurance.
When retirement planning and using an insurance-based financial strategy, it’s important to remember that there are pros and cons of each investment tool. Understanding all options enables you to create a well-rounded plan that will take care of future needs. Sage Wealth Strategy can help you do just that!