“Now he who supplies seed to the sower and bread for food will also supply and increase your store of seed and will enlarge the harvest of your righteousness. 11You will be made rich in every way so that you can be generous on every occasion, and through us your generosity will result in thanksgiving to God.” (2 Corinthians 9:10-11)
We’ve already discussed the tax advantaged growth within the life insurance policy and the ease with which it can be accessed. We’ll talk tomorrow about just how well the policies have performed historically. Today we want to focus on the many side benefits of ownership of this kind of policy. These are important because when determining the value of any given decision, a true economist will not just look at the direct consequences of that decision, but will also need to measure the ripple effects of that decision in order to understand its full impact. Each additional benefit of a financial decision adds to the overall external rate of return of the decision and increases your wealth in financial or non-financial ways. Let’s look at a few of these:
1) Recognized as a Liquid Asset on Balance Sheet – If you go to a bank for a loan, they will ask you to give them a list of all your assets. One of the blanks you fill in will be the cash value of your life insurance. The bank recognizes this as a liquid asset that can be accessed if necessary. This makes it a more valuable asset to you as collateral than a retirement account.
2) Protection from Creditors – This one is a little different state by state. In most states, the cash value within your policy cannot be touched by creditors if you are sued. In Texas, where we are, both the values within the policy – the cash planned to pay future premiums – and the values taken out of the policy, are protected. (We are not attorneys, but this seems to be well understood.) So having cash here gives another layer of protection to you that is not available if the cash were held in the bank.
3) Disability Benefit – It is advisable to get a Waiver of Premium Disability benefit on your whole life policy. This benefit says that if you become disabled and unable to work, you do not have to pay into your policy to support it. But unlike the weaker provision with a universal life policy which simply eliminates the cost of insurance, most good Mutual Whole Life companies will make the payment for you as if you were making it until age 65. What this means is that even if you only made one monthly premium into the policy before being disabled, you could have millions of dollars there in your old age. Hopefully (and probably) you will never be disabled, but if you are, even with good disability insurance you would probably be looking at a very poor financial future. However, with this provision, it is possible to have every financial plan met, even in the case of disability, as long as you had enough money flowing through these plans.
4) Death Benefit – We focused on this benefit in the Roots section. It’s so important that we’d suggest you go back and read the discussions on the Living Value of your death benefit and How to enjoy your money & still give it away. The Permission Slip benefit that having a guaranteed death benefit provides is absolutely key. This is sometimes hard to grasp, especially for younger people. But you don’t really have much if you’ve fulfilled the American Dream and have $1,000,000 in the bank at retirement, if you’re petrified to use the money because you’re afraid to run out. Your guaranteed death benefit gives you permission to actually spend your money (either by enjoying it or giving it away as the Lord leads), which in effects doubles the amount of your real wealth. This difficult counter intuitive concept describes one of the most powerful assets you’ll have late in life, so be sure and go back and read that if you need a refresher.
Another benefit of having a permanent death benefit is that you no longer have a need for term insurance in that amount (you might still need additional term to meet your full HLV). Thus the cost of the term insurance that you otherwise had, or should have had, can be added back into your investment funds. This results in an immediate return on investment of usually 10-20% on top of the performance within the policy! Every year!
5) Life Long Growing Dividends – The Dividends within your policy start out small. But over the years they become quite large. And that growth keeps growing. It adds another dimension of security knowing that you’ll be receiving a growing dividend each year well past age 100 when most pensions have little to no growth.
Tomorrow we’ll talk about just how much these policies do grow.
This is Part 5 in a series on Whole Life Insurance. You might want to read the introduction to this series which will link to each post in the explanation of whole life and Ben’s story showing how whole life is used in a variety of ways in his life.
Photo credit: Mark Os