There are several reasons why purchasing a whole life insurance can assist in accumulating wealth for the family. This is not a concept that is readily known by some families. It is a concept that many wealthy families use to accumulate wealth.
A whole life insurance policy is one that accumulates cash value while providing a fixed benefit amount to a beneficiary upon the death of the policyholder. This death benefit is guaranteed and will always be there if the premiums are paid. The cash value begins to accumulate within two or three years, depending on the life insurance company which is providing the benefit.
The cash value accumulates in the policy every year and is not a value which can be lost due to a declining stock market. Therefore, the value never declines. This is beneficial if the policy owner needs to withdraw the cash for an impending need. On the contrary, money that is invested in stocks and mutual funds fluctuate each year and there is no guarantee against loss.
Additionally, the policy holder can have access to the cash without having to pay taxes or a penalty. He/she would only have to pay the money back with interest, usually about six percent, if they desire to pay it back. If they do not pay it back, the amount borrowed is deducted from the death benefit.
To increase wealth, policyholders can use the cash value for real estate purchases, automobile financing, and private lending. Most people will use it for the emergencies which transpire, such as flat tires or replacement of appliances. However, consider using the cash value to accelerate your wealth with real estate or for a down payment on an automobile. This will involve planning to determine the best time to make a purchase such as this, but purchasing a home will result in a tax shelter for many families and individuals.
If the policy holder is building an estate and has a will, the family can live on the life insurance proceeds while the estate is being settled. In some states, it may take eighteen months before the estate can be settled in probate court. This would allow the family to continue their normal lifestyle while waiting for a court date. Any other money is tied up in the estate and cannot be touched until the estate is settled.
The whole life insurance policy can also be used to transfer wealth. If a family desires to leave a son or daughter a lump sum of cash to help them build their own estate, they can purchase a life insurance policy for “pennies on the dollar” and name the son or daughter as a beneficiary.
If concerned that the son or daughter may squander the money, the parent can place the life insurance in a trust and designate how the money will be paid out. (It can be paid out in monthly installments, rather than as one lump sum.) Parents do not have to have an exorbitant amount of money to place in a trust. Seeking the advice of a trust attorney is highly recommended.
One way of avoiding financial calamity upon the death of a breadwinner is to purchase life insurance on the person to replace the lost income upon his death. If a spouse relies heavily on that income, it could be sorely missed when the breadwinner passes away, especially pre-maturely. This should be a consideration when meeting with a life insurance agent. I Timothy 5:8 says, “But if anyone does not provide for his own, and especially for those of his own household, he has denied the faith and is worse than an unbeliever.”
In conclusion, a final expense policy is not the only way to use life insurance. The tax-free money that accumulates in a life insurance policy can be used to accelerate wealth, is not subject to loss due to market fluctuations, and is not taxed. Families should ensure that they do have a whole life insurance policy for flexibility and tax savings during times of need.