How to Use Whole Life Insurance to Create Wealth

To use whole life insurance to create wealth you need to:

  • Secure a policy with a higher guaranteed growth
  • Contribute to the cash value of the policy
  • Borrow from yourself instead of the bank
  • Use the cash value on other investment opportunities
  • Turn profits back into the policy for future growth

In this article we discuss each step in detail, starting with what sort of policy you need to look for and finishing by explaining how you can repeat this process as needed. Read on to see how you can use a whole life insurance policy to create and build wealth.

 

Why Whole Life Insurance is Best Suited for Creating Wealth

When you pay into a whole life insurance policy your money is put into a death benefit and a cash value.

The death benefit is the result of the policy. This is what is paid out to beneficiaries at the end of life, and it is generally left alone to cover expenses and intended inheritance for those you leave behind.

While the death benefit has its uses, the cash value is the part that is best suited for creating wealth. This functions as a savings account, and once you reach a certain point you can withdraw from the cash value to cover other expenses.

This can help you build wealth in a few ways.

The first involves borrowing from the cash value instead of a bank or other lender for your financial needs, like paying for college tuition or making a large purchase. While these investments do not have a return on investment, borrowing from yourself saves you from paying out more in interest.

The second way you can build wealth from the cash value is to use it to invest in things that provide a sizable return on investment.

 

Why Use Whole Life Insurance Instead of Traditional Savings Methods

There are a few different ways that you can save money in an attempt to build wealth, but they tend to fall short.

Traditional savings accounts have an incredibly low interest rate, some falling as small as 0.1 percent. When you compare this to guaranteed growth of 6 to 8 percent with whole life insurance it is not nearly enough to be substantial.

You might be able to find comparable growth by investing in stocks and bonds, but this leaves your money at the mercy of market conditions.

Whole life insurance investments have more tax benefits than retirement plans that hit you with all fees when you finally withdraw from the account.

Looking at all these differences makes it clear that the cash value of a whole life insurance policy provides fantastic opportunities for building wealth.

 

Securing the Right Whole Life Policy

To create wealth you need to make sure you start with the best policy to do so. Look for a whole life insurance policy that guarantees growth at a rate of at least 3 to 4 percent. You should be able to find plenty at or above this rate, but this is the lower threshold to work with.

Your policy should also provide an annual dividend of 1 to 3 percent. This dividend can be left alone to build value over time, or you can use it to pay your premium or increase your coverage.

 

Contributing to the Cash Value

Before you can start to withdraw from your cash value you need to build it. You need to reach a certain amount before you can make withdrawals, but this changes depending on your insurance provider and the value of your policy.

You should build your cash value beyond what you expect to borrow. Do not hit a certain milestone and immediately celebrate by withdrawing all your funds.

Keep in mind that your withdrawals from the cash value are tax-free unless you withdraw more than the value you accumulated.

 

Borrowing from Your Whole Life Policy

Once you grow your cash value to a safe account you can begin to use it to be a bank for yourself. Instead of going to a bank and requesting loans or financing, you can do the work at home and lend yourself money to cover expenses such as:

  • College tuition
  • Emergency expenses
  • Major purchases

A key example of this is making a large purchase, like a vehicle, that you would normally finance.

By using your cash value you can cut yourself a break on the interest. Depending on the size of the investment and the timeframe of the loan, this can save you hundreds and even thousands of dollars in interest, giving you more money to create wealth with.

 

Using Whole Life Insurance to Invest

You can use the previous step to invest in opportunities that will grow your wealth, effectively using your whole life insurance policy as your own bank. Instead of using the cash value to save money by foregoing interest, you are using it to flip an opportunity in your favor.

For example, using your cash value to purchase real estate can bring you an opportunity to earn an annual return on interest at a rate of 25 percent. This means that you will earn back your investment in just four years, and after that, you are making pure profit.

 

Turning Investment Profits Back to Your Policy

You can use the profits made in any way that you want, but to continue the cycle of creating wealth you should turn it back to your policy. We already discussed the beneficial guaranteed growth rate and tax benefits of doing this, but by increasing your cash value you can buy into a better investment opportunity in the future.

This is the point at which you begin to repeat the process, and you can continue to do so as long as you see fit.

 

Setting up a Plan That Works for You

Using whole life insurance properly can set you on the path to creating wealth, but this method involves playing your cards perfectly. Reach out to Sim Gakhar for help finding the best whole life insurance policy to use to construct the perfect plan for building wealth.

 

FAQs & Helpful Resources Regarding Whole Life Insurance