If you’re like most Americans, you know that Life Insurance can financially protect your family. When you pass away, your loved ones can use the Death Benefit to cover expenses and outstanding debts.
However, some products also have a feature – called a Cash Value Account – that allows you to accumulate wealth and borrow from it. As long as you repay the policy loans, you can repeat the cycle of building up wealth and borrowing against it. This looping concept, known as “infinite banking”, gives you the awesome ability to achieve multiple financial goals. For example, you can:
SUPPLEMENT YOUR INCOME DURING RETIREMENT to mitigate risks like rising healthcare costs, stock market downturns, and inflation. (Side note #1: During a stock market downturn, you should avoid withdrawing funds from an equity-based retirement account such as a 401(k) or IRA, since it reduces the amount of principal that can generate compound growth. So, by utilizing the infinite banking concept, you can instead get the money you need from your Cash Value Account.)
INVEST IN REAL ESTATE. By taking a policy loan, the money borrowed can earn a rate of return in two places simultaneously: (1) the property you acquire and (2) your Cash Value Account. While the property appreciates (and/or generates income), the borrowed money grows with interest in your Cash Value Account… as if you never took it out! (Side note #2: I totally get if you think the second part sounds too good to be true, but that’s how policy loans work! It’s a beautiful thing!)
HELP YOUR CHILDREN PAY FOR THEIR COLLEGE EDUCATION. (Side note #3: When applying for college financial aid, the funds in a 529 plan count as a family asset, whereas a Cash Value Account does not.)
PAY OFF CREDIT CARD DEBT. A policy loan will save you hundreds – if not thousands – in total interest. Moreover, your credit score may improve, since policy loans do not affect it.
INVEST IN YOUR BUSINESS. If you are (or aspire to be) an entrepreneur, a policy loan gives you access to cash at a lower interest rate than traditional business loans. This is especially valuable if you need capital to start or expand your business. (Fun fact: In the early 1950s, Walt Disney borrowed against the value of his Life Insurance policy to realize his dream of creating a theme park like no one had ever seen. In 1955, Disneyland opened its gates.)
Perhaps you’re thinking, “Bob, can’t I just use a traditional bank to save and borrow money?” If so, the answer is “Sure”, but as I detailed in my previous column, using Life Insurance as your personal bank has tax, interest, and other distinct advantages.
In summary, Life Insurance is a powerful – yet underrated – financial tool. Not only can it protect your family when you pass away, you can leverage the Cash Value Account to achieve a multitude of financial goals – from supplementing your retirement income to paying off credit card debt.
For more information, please visit my website or contact me at bob@venangostreetinsurance.com. Consultations are free with no obligations.