Building Wealth Outside Of Wall Street: Investing In Yourself

Building Wealth Outside of Wall Street
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When someone mentions building wealth outside of the stock market, people often think of purchasing real estate, one of the oldest forms of accumulating wealth. They also imagine the purchase of precious metals or, nowadays, Bitcoins and other cyber currencies.
These methods have been successful for some, but they require the asset to increase in value and be sold for it to capture any gains. However, one investment vehicle helps accumulate wealth while protecting your assets and dependents, one that always goes up in value – life insurance.
Life insurance policies are traditionally meant to provide financial protection for your loved ones or business partners. Anyone with a mortgage, college debt, children to provide for or is a key person in a business should have life insurance.
However, besides providing a death benefit, permanent life insurance – such as universal life or whole life – also contains an investment component that enables policyholders to accumulate cash value.
Part of the money paid to the insurance company goes to covering premiums and fees. The remainder, however, is held and grows in a tax-sheltered investment account. The funds invested, depending on your plan, will earn far more than a fixed income asset to continue building wealth, but admittedly not grow as fast as a hot stock market.
However, most life insurance policies have floors on policy value that ensure there is never a loss, regardless of what the market did that year.



Life Insurance As An Investment Tool For Building Wealth

There are many benefits to using life insurance for building wealth:

  • Your account earnings are tax-deferred. Proceeds from the cash-value component of a life insurance policy are not subject to tax until they are withdrawn. This is true on most retirement accounts like 401(k)s. However, the gains in the cash value account are not subject to income tax for your heirs, like those in a traditional IRA or 401(k).
  • You can borrow against the cash value without paying taxes or penalties. Unlike retirement plans or other investments, assets accumulated in life insurance account can be “borrowed” by you for a house, college tuition or unexpected major expenses without any penalties or tax hit. You can set up an unstructured loan from the insurance company with no repayment schedule, which allows you to avoid traditional bank financing or credit card interest. Since the money is officially a loan and not a distribution, there is no income tax hit. If you do not pay the loan back, the amount is eventually deducted from the death benefit.
  • Your cash value life insurance balance does not affect college financial aid. Most schools rely on the Free Application for Federal Student Aid (FAFSA), which ignores equity in your home, assets in qualified retirement accounts, annuities and cash value life insurance. If the student is applying to one of the 250 private schools that require completing the College Board’s CSS Profile, however, everything is factored into the family contribution calculation except cash value life insurance. Reportedly, only two schools ask for that information.
  • Assets in a life insurance policy or annuity have protection from lawsuits. Successful business owners and people often attract litigation. Having assets in a revocable living trust will not protect them from a creditor or court settlement. Universal life policies and annuities do offer wealth protection.

Cautions And Priorities

Having life insurance is vital for protecting family and business interests. However, if you are looking at life insurance as an investment vehicle, it should not be your primary savings tool. Any investment adviser will tell you other options should come first, such as contributing to a 401(k), particularly with a company match.
You should max out traditional IRAs and Roth IRAs (if eligible), too. Then, cash value life insurance becomes a means to building wealth.
If you are purchasing a life insurance policy, work with an adviser, like Factum Financial, with experience designing policies to maximize cash value. Most insurance companies offer a wide variety of policy riders that increase the costs and eat away at your returns. For each possible policy option, request an illustration to see what the likely impact will be.
Factum Financial specializes in providing advice and education to individuals and business owners on using life insurance policies to protect themselves while building wealth and legacy. Factum works with clients in weighing purchasing options. Then, they continue their interaction with clients after they buy life insurance to help them maximize the value. For more information, get in touch with Factum.



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