Why Do The Wealthy Use Life Insurance To Store Money?
Here is a fact: life insurance is the #1 asset class held by most banks on their balance sheets. A balance sheet is a financial summary statement of the assets and liabilities held by an entity. Banks own life insurance more-so than they own real estate. The wealthy are no different. Today I want to explain to you why. Life Insurance is a wealth creation tool that has been around for hundreds of years. Your mutual fund hasn’t even been around 100 years at that. Your 401k hasn’t even been around 50 years. The dollars you save with change every 30–40 years. Three of the oldest, most tried and true asset classes are bullion, real estate, and life insurance. Today I’m going to talk about why the wealthy save money with life insurance.
#1. Cash is trash. Cash goes down in value year after year. My postage stamps just went up by 6%. This means that your very own government felt the need to increase their prices by 6% from 2018–2019. What can we assume from that? The buying power of your dollar went down by at least 6% since last year. The wealthy don’t save money in cash. They understand it goes down in value year after year. But they still need liquidity and growth to outpace the inflation. Life insurance is something that does that. Your life insurance policy, when structured properly should earn a 6–8% annual dividend based on historical averages. You can also borrow against up to 95% of your cash value from day 1 and do it tax free. Not only that, but the account is guaranteed against loss and will always earn at least a 4% dividend no matter what.
#2. Leverage. The wealthy understand that getting your money to grow in more than 1 location at once is a key to financial freedom. Banks do it, real estate investors do it, governments do it and the wealthy do it too. Life insurance is the 3rd best way to leverage money. Owning a bank is the 1st best way. Most people can’t do that. Owning multifamily real estate is the 2nd best way, which you should do, but you need somewhere to store the money up until you’re ready. High early cash value life insurance is the 3rd best way to do it. When you invest money into life insurance you can borrow against it and still have the money growing simultaneously. Think about it like this. Your life insurance grows at 6%. You borrow against it at 5%. You still earn the 6%. And you go make 12% on a real estate deal.
#3. Asset protection. Most people aren’t aware that life insurance is a unilateral contract. This means that the contract is one-sided. You, the owner of the policy, are the only one who can access it. Banks can’t, the IRS can’t, the government can’t, and creditors can’t. The only other way to accomplish this is with a trust or a Self Directed Solo 401k (which is technically a trust). The wealthy put money into life insurance to hide it from those who steal wealth (the entities I mentioned) and they shelter their cash.
#4. Tax avoidance. There are many ways the wealthy use life insurance to avoid taxes. The first and most simple is the fact that the life insurance grows tax free. That’s IRS ruling. When money is in the life insurance, it is not taxed again. Think about what that means. It’s going to earn a 6% dividend and grow forever and never be taxed. The other way you can use life insurance to avoid taxes is to transfer owner dividends and bonuses from your corporation to your life insurance policy to avoid paying taxes on the dividends. Let’s say you own an S Corp and that S Corp is going to pay you, the owner. The S Corp is going to pay you a reasonable wage, and then pay you dividends and bonuses beyond that. You will pay taxes on those. Or, you can contribute the money first to a policy, and then borrow against it tax free, and loan it to yourself. There are no taxes due on that loan. Lastly, the death benefit is tax free as well. Most wealthy people will use that death benefit to pay their estate taxes when they pass away so that the IRS cannot steal their legacy.
#5. Safety. Warren Buffett says the #1 rule of investing is to not lose money. #2 rule is never forget rule #1. Life insurance is guaranteed against loss. The right policy is going to have a 4% guaranteed minimum dividend. Policies are also guaranteed by the state you live in. Not only that, a good policy has paid dividends for 150+ years straight without missing. In addition, the top 2 companies we work with are 160–175 years old. You need to know your money isn’t going anywhere. The wealthy don’t invest in things that aren’t a sure thing. That’s why they use life insurance.
The bottom line is that life insurance is a powerful asset class. If you don’t believe it, it is because you’ve never heard of this or because you’ve seen it done wrong. Most agents can’t and won’t design a policy right because it lowers their commission. Most financial advisors are uneducated on this topic and get paid more to sell other things. Most CPA’s don’t study financial products. They study numbers and it’s not their job to know about life insurance. Unless you step out and start learning about this stuff on your own, you’ll never know, and you’ll miss out. If you’re interested in adding life insurance to your wealth strategy, click here.
If you’re a follower and have not read my book “The Blueprint to Financial Freedom” yet, that is the place to start. This book covers the specifics for each level in the various chapters, and you can grab the book for free as my gift.
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The Blueprint to Financial Freedom by Jerry Fetta
To Purpose, Wealth & Freedom,
Jerry Fetta
Jerry Fetta is the CEO and Founder of Wealth DynamX. He is a nationally recognized financial expert featured in Forbes, Yahoo Finance, Fox, Chicago Weekly News, New York Finance, interviewed on over 45 podcasts with world renowned experts, earning endorsements and affiliations throughout his career with names like Kevin O’Leary, Grant Cardone, Dave Ramsey, and Pamela Yellen.
Jerry’s mission in life is to help create millions of financially educated and solvent families achieving greater financial freedom and sharing the truth about money with those around them.
Learn more at www.WealthDynamX.com
(DISCLAIMER: The information in this content should not be considered tax, financial, investment, or any kind of professional advice. Only a professional diagnosis of your specific situation can determine which strategies are appropriate for your needs. Wealth DynamX can and does not provide advice unless/until engaged by you.)
