Building Wealth Using Life Insurance
by Arina Smith Insurance 30 March 2018
Investors can spend years designing investment portfolios that build wealth for this generation and the next. While insurance may not fall under the strictest definition of investment, it is a financial product that can both protect assets and help them grow. Including life insurance as part of a well-rounded financial plan can provide several types of benefits.
While the stock and bond markets typically do not both decline in the same year, many investors appreciate placing a portion of their net worth in an insurance vehicle that does not wildly fluctuate with market changes. Whole and universal life insurance policies offered through a full-service Denver insurance agency frequently feature predictable premiums and fixed benefits schedules.
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Protected Asset Growth:
Universal life insurance policies can act as excellent savings vehicles. As the cash value grows, funds can be invested in accounts with guaranteed minimum rates of interest or returns based on equity indexes. One of the most common indexes used is the S&P 500. Although gains may be capped, thereby limiting the upside, the dollar value of the account will not be reduced if the index loses money during the period.
Protection From Creditors:
Both the insured individual and beneficiary may be protected from using insurance assets to pay debts. In many states, the value is shielded from personal or business lawsuits and formal collection proceedings filed against the insured. Alternatively, if a beneficiary files bankruptcy but receives an insurance payout within 180 days after filing, the payout may fall under federal or state bankruptcy exemption rules.
After withdrawing funds from a savings account, the money no longer earns interest or dividends. When you borrow money from an insurance policy, the cash value is used as collateral and continues to earn a rate of return on your behalf. In some cases, the rate of return earned by the investment made through the Denver insurance agency could be higher than the cost of the interest paid to borrow the funds.
The cash value of life insurance policies typically grows tax-deferred. If you already made maximum contributions into other available tax-free accounts, life insurance can provide a way to increase your tax-free investment portfolio. You may also be able to withdraw a portion of the cash value as a tax-free loan that does not have to be repaid during your lifetime. According to Investopedia, those in the highest tax brackets may be able to avoid capital gains taxes and the Affordable Care Act Medicare surtax on investment interest when borrowing from an insurance policy.
Many individuals use insurance to pay inheritance taxes and keep assets such as businesses and properties in the family. To protect cash towards the end of life, some policies include accelerated death benefits that can be used to pay for health care or other expenses when the insured becomes terminally ill.
Building the Family’s Wealth:
Depending on your circumstances, life insurance may be a financial tool used to build and protect wealth during your life and beyond. Understanding the costs and benefits of various investment tools, including life insurance, can lead to financial security for you and your family in the future.
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