How to Maximize Your Life Insurance for Wealth-Building

When it comes to securing your financial future, getting started sooner can help optimize the amount of returns you will gain as you near retirement. Many financial advisors would suggest investing immediately once you’ve settled down in your career.

You might want to allocate a portion of what you earn for securities investments on top of setting aside savings and a separate emergency fund. However, there’s a lot more you can do with the time and resources you still have by maximizing the benefits offered by a stable life insurance policy.

More than just securing the financial future of your family once you’ve passed away, life insurance can also be a significant driver of generational wealth. It’s only a matter of making the right decisions and using the right approaches to harness your policy to fund other life goals while you’re still alive and well. In this guide, we’ll look at a few key strategies for making the most of life insurance and doing more than saving for a rainy day.

1. Understand what life insurance types to get

Not all plans can guarantee a wealthier future for you and your family. You should focus on signing up for a policy that fits your financial goals, whether it involves funneling more cash into your retirement expenses or building a business you can hand over to your next of kin. No matter the case, choose life insurance that matches your priorities as well as your current earning power. Keep in mind that you may struggle to keep your finances stable if you settle for a permanent life policy.

However, people who have long-term financial goals consider permanent life insurance ideal since the cash value is guaranteed to grow. The only trade-off is that you may have to pay higher premiums compared to other types of insurance. If you have investment goals to pursue, then a variable life policy might be the best type of permanent life insurance to get. One disadvantage of this type of policy is that you could be paying higher fees and expose a significant portion of the investment component of your life insurance to greater risk.

Even at a loss, you’re still compelled to secure the minimum death benefit of your plan. To be on the safe side, talk to a financial advisor and let them help you pick a policy that fits your current financial situation and ensures massive gains as you continue paying your premiums.

2. Use your policy for loans to fund investments

Through constant premium payments, you will be able to grow your life insurance’s cash value to a point where you can use it to either take out a loan or use the policy itself as collateral. Either way, you can use the funds you’ve set aside to finance a business. If you lack the resources to build enough capital for your business idea, at least your life insurance offers more than enough to cover initial business costs.

You just have to choose between these two possible approaches. If you’re planning to take out a business loan from a bank, you can use your policy to establish your trustworthiness. Because of the large cash value of your life insurance, lenders may see it as a good indication that you can make timely repayments. This, in turn, helps you secure better loan terms at lower interest rates.

Another route you can opt for is by taking out a loan from your policy. This would work if you’ve built enough cash value to cover the loan amount. Both these options may suit your investment needs. However, you need to realize that any amount you still owe on a loan backed up by your life insurance will be taken out of the payout to your beneficiaries if you pass away before the loan is fully paid off.

3. Optimize for estate planning

A big part of wealth-building is leaving a legacy for the next generation to enjoy. You will do your children and their children a huge favor by letting them enjoy the fruits of your hard work. The total cash value of your life insurance policy will be transferred to your beneficiaries, allowing them to access and nurture their share of your financial resources. The best part is that your policy offers tax advantages that ensure a greater payout for your inheritors who may enjoy tax-free lump sum payments.

What’s more, if you’ve opted for a permanent life insurance plan, you can use the money you’ve built to secure taxes and debt obligations you may still have, thus keeping your assets from being auctioned off the balances you still owe to lenders and the government.

All you need to do is establish an irrevocable trust to secure the value of your life insurance from creditors as part of your estate plan. Talk to an experienced estate planner and private wealth management institution who can walk you through the process of turning over the value of your life insurance earnings without significant losses and risks.

Endnote

If you’re planning to get life insurance, it pays to know that you have a vehicle for making money that’s sure to secure your family’s financial future.