Insurance

Whole Life Still Gets Better with Age

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In our 10+ years of talking about life insurance on the internet, we’ve mentioned a few times that cash value life insurance gets better with age.  It’s a simple idea, but it comes with significant implications as we age.  Our vulnerability increases as we get older, and this is when life insurance is at its best.  The complementary nature of this relationship is quite striking.  But you don’t need to be elderly to reap the benefits of buying life insurance.

Throughout our careers, we’ve personally overseen life insurance accomplish an array of tasks including:

  • Pay for college.
  • Providing the funds for a chance investment opportunity when liquidating stocks would have been bad timing.
  • Buy cars.
  • Bridge a financial catastrophe
  • Provide retirement income
  • Improve creditworthiness through traditional lending
  • Fund a business venture/fund a business start-up and expansion
  • Pay for inventory
  • Replace mortgages with more favorable lending terms

It tends to take some time, but there’s often an a-ha moment people have years after buying life insurance.  A moment where the things we often discuss come into focus because they experience a real-life scenario where life insurance can come to the rescue.

Working with Well Traveled Individuals

Many of our clients are “well-traveled” financially speaking.  They own other investments.  They’ve watched how those investments reacted to an array of major events.  They have also watched how life insurance reacted to the same events.  They really appreciate what life insurance does.

Our clients also tend to have experiences that some might view as exotic.  They’ve started businesses, made partner, bought-out someone’s ownership interest in a business, managed institutional investments, brokered private equity deals, provided venture capital/debt, lost business partners, have been sued, have sued someone, have personally paid a transfer tax, and lost money due to a financial scam.

Most of our clients aren’t idealistic about the world.  A lot of them are financially “well off.”  But they constantly worry that everything they’ve worked to accomplish could evaporate.  Their experience witnessing such an event taking place to a friend or family member tends to be the source of this concern.

The number one reason they identify when asked what drew them towards life insurance was its ability to protect them from loss while also providing incredible tax efficiency.

Life Insurance Provides a Road Map

Life insurance provides a solid road map people can use to hammer down at least a part of their retirement income plan.  A lot of financial plans lack foresight.  They make vague references to savings rates, assumed accumulation rates, and then spit out an income number.  These reports are often laid over a “needs” chart that usually kicks unsuspecting people in the gut with lots of ugly red bars denoting how up the creek they’ll be if they stay on their current course.

Freaked out by the impending deficit, people act but never really understand why they are it or how it will ultimately result in protecting them from those scary red bars.

Life insurance is a sort of retirement plan in a box.  While the future results are projections that can–and do–vary, we at least know how to work the mechanisms.  With life insurance, the when and how is easy to lockdown.  The how much is variable, but that’s true of everything.

This is also true using life insurance outside of retirement income.  We have several clients who regularly take loans from their insurance policies.  They rarely involve us in the process–not that we can’t be involved.  These clients figured out that it’s super easy to call the insurance company, request a loan, get their money, and do what they planned on doing.  They’ll reach out with questions at times, but they already know how to “work the mechanisms” and use the life insurance policy to accomplish what they want.

They don’t have to worry about if now is a good time to cash in.  They don’t have to worry about the tax liability created by taking the money out and using it.  We’re not going to harangue them about taking money out of the policy because most of them bought the policy to do this.  And on top of that, it doesn’t really affect what they can do with the policy’s cash value in the future.

But it Can be Difficult to Understand

Choosing to buy life insurance and make it part of your wealth-building strategy requires a little bit of mental exercise.  Understanding what it is, why it works, and how it might help you takes some figuring out.  I think most wealth-building alternatives are similar, but there are people who will disagree.

The chief reason people tend not to use life insurance for this purpose is they can’t understand it/they don’t want to spend the time understanding it.  That’s okay.  The chief reason most people fail at diet and exercise is that they don’t fully embrace the plan.  We could find a plethora of analogies that speak to the same idea.

But I have a Cousin Who Got Burned by a Bad Life Insurance Policy

I have several cousins who paid too much for their cars.  I even have one cousin whose job is to make people pay too much for their cars.  Doesn’t mean you shouldn’t buy a car.  You need to be judicious.  The really good news is there’s a 10-year-old (slightly more than that actually) repository on this very subject that remains to exist and thrive as the leading resource for information on how to use life insurance as part of your wealth-building plan.  Its long-standing existence is a testament to its subject matter’s desirability.

Reviewing Aged Life Insurance Policies

We’ve recently reviewed policies with a handful of clients who bought policies several years ago.  They all expressed the same happiness over their decision to buy.  There were a few things we pointed out about which they weren’t fully aware–they appreciated coming to know this.  Everyone also appears to be noticing the same thing, the exact thing I’m talking about here.  Their life insurance policies are getting better as time goes on.  They accumulate more money with every premium payment.  Their stability looks mighty impressive against the unknown that often clouds their regular stock et. al. positions.  And the majority of them have also taken money out of their policies at some point.  They’ve accomplished quite a lot with these policies already, and they’re really just getting started.

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