5 Reasons You Should Consider Life Insurance From Your CPA
Life insurance is often a word that is not appealing to a lot of readers. Many people either love life insurance or hate it. However you may view it, the bottom line is that life insurance can be used as an important tool to help you protect your income, which I identify as one of the Four Foundations of Wealth Creation.
A common misconception of life insurance is that you have to be wealthy to invest in it. This is wrong! You do not have to be wealthy, nor do you have to have a high-cost premium. Here are five reasons you should consider in investing in life insurance:
1. Disciplined Savings Plan
Life insurance can be used as a disciplined savings plan. This, in my opinion, is one of the best benefits of life insurance. The majority of people prefer to set up an auto-draft for their monthly premiums. This will force you to consistently allot an amount of money to be put into your policy. Not only does this disciplined savings plan benefit you and your policy, but can be used as an example to your children on how to save and increase the value of the policy in the future.
2. The Death Benefit
The death benefit is created to ultimately protect your income in case something happens. A good way to think about the death benefit is to think about all the work that you have accomplished throughout your entire life, thus far. The death benefit ensures that, if you die, you will still be able to provide your family with the same lifestyle prior to your death. The death benefit is also beneficial to individuals without spouses or children! The death benefit could go to your parents, aunt, uncle, or siblings! It allows you to leave your legacy, whether it's to your own family, a foundation, a church, or a charity that you love.
3. Cash Value for Your Personal Financial Statement
When using the word cash value, I am referring to the benefits of whole life or what I'll just generally call permanent life insurance policies. To be clear, there is no cash value in term insurance. In these types of policies, you will pay additional premiums above what the term would be. That additional money is invested by the insurance company. It can be invested in multiple ways that you dictate!
The investment is returned to you in the form of a cash value that you will have 100% access to on day one of the policy. You can put the cash value on your personal financial statement to show that you have access to cash. It is a great line of credit! By doing this, it increases your net worth, and when your net worth is higher, it is a lot easier for banks to provide loans. You can use this cash value to increase your net worth, invest in your business, or get a much-needed loan!
4. Becoming Your Own Bank
You become your own bank when you utilize a cash value life insurance policy. Say you need a loan to invest in a property. You could get this money from a bank and they will charge you a certain interest rate, or you could take the cash value accumulated in your life insurance policy and borrow the money from yourself. You end up netting a certain percentage by going to get your own money, as opposed to paying the bank, whatever interest rate they were getting. The interest that you paid on the loan to yourself is also a tax write-off. You end up paying yourself interest ahead of time, instead of an institution like a bank.
5. Tax-Free Distributions
As a CPA, this is my favorite benefit of utilizing life insurance. I often ask people "Do you think tax rates are going to be higher right now or later?" The best part about this fifth benefit is that the money you are putting into a life insurance policy is after tax. As tax rates go up, you are putting money into the policy at the lowest tax rate.
In comparison to a 401K, you are not penalized for taking money out of the life insurance policy early and can take amounts of the cash value out at any time. The government enforces minimum distributions to be taken on 401K's because they want to be able to tax it when you take it out because you have deferred the tax for so long!
The Bottom Line
You can utilize life insurance in many different ways to help you build and protect your wealth. If you are interested in having a conversation about how you can start utilizing these benefits of life insurance, fill out this form!