6 Benefits of Whole Life Insurance (Infinite Banking)
The benefits of a whole life insurance contract Listen, they’re loaded with guarantees primary guarantees and secondary guarantees You put money into the policy in the form of a premium and the issuing Insurance company guarantees the cash values and the future death benefit. The guarantee is backed up by their claims paying ability Well, there are also secondary guarantees They’re provided by the states the individual states through the state guarantee associations Control it’s a private contract. All right, you own it you control it. Now think about that. Sometimes, not always, but sometimes Control is better than ownership Right, if I can control an asset or own an asset, which is better. Well, it depends on the situation Sometimes control is as good as or better than ownership But with a life insurance contract with a whole life insurance contract the owner has control of that policy guaranteed by contract dividend-paying whole life or whole life insurance has a guaranteed cash value the cash value is made up of two parts guaranteed interest and non guaranteed dividends So the interest is guaranteed no matter what the cash value earns interest every day forever Compounding 24 hours a day 7 days a week 365 days a year Year over year, even on weekends. Think about that earning interest every day And then the non guaranteed component of the cash value is the dividend. Well, we’ve kind of got to consider. What a dividend is Well, the dividend is the experience of the company So if the company has a profitable year they experience You know good profits for the year or they experience profitable year then they pay a dividend to the policyholders If it’s a mutual company Now the dividend is classified as a return of premium under the Internal Revenue Code. So therefore it’s not taxable Well, perfect. I don’t care what they classify it is. Just pay me a dividend Okay, and then you look at the cash value What is the cash value of life insurance? The cash value? literally is the net present value of a future death benefit minus the future premiums Right. It’s very simple you Pay a premium part of that premium accumulates internally and it and accumulates as a cash value. The cash value grows at guaranteed interest rates and dividends that are not guaranteed But that is an accumulating value. The cash value is accumulated forever. So if you if you consider to What is the company doing whenever you pay the premium? You know they’ve got to put a portion of that premium, I mean, there’s expenses no question to creating a life insurance policy. Distributing that product and we all know that the consumer pays for everything right? There’s nothing new about that but look part of your premium goes to cash value that cash value The Company has to put to work to meet future obligations Which is the death benefit your death benefit in the future cash values. So the companies They have to be very conservative. They put that money to work in guaranteed interest rates and guaranteed payback schedules But you as the owner have control of that cash value as it relates to your policy Why? Because contractually you have the right to access that cash value and you can do that through withdrawals or loans or collateralization. Right now think about that. I can get mad and quit and withdraw my cash value. It would collapse the policy. It doesn’t exist any longer But I’ve got my money out of it. or I can by contract collateralize that cash value. So, if I do that, if I borrow from the insurance company collateralizing my cash value, that cash value is still earning interest and dividends forever. I’m not interrupting that compounding because it’s a contract. Alright, the life insurance is a contract There’s a lot of things you can do with that cash value. You can take the cash value and make it pay its future premiums. Yeah, it’s called premium offset or paid from policy values. I don’t want to use a bunch of you know industry jargon but I have control over that policy. All right, so I can use the cash value Through withdrawals or loans and I can use it to do anything I want. If I didn’t want to pay a future premium, I could make that cash value pay its future premium. It’s just premium offset or pay from policy values I can start and stop that. The tax treatment of cash value is literally and technically and legally tax deferred. If I put money into the policy it starts accumulating a cash value. That cash value is going to accumulate tax deferred, but I can also access it tax-free, right? So if I if I let it accumulate Compound and grow and build, I can withdraw it. Withdrawals from a life insurance policy are tax-free up to my basis. My basis is just what I paid into it. Then, if I withdraw above my basis I’m taxed at ordinary income on those withdrawals or I could switch to loans. I could withdraw the basis and then switch to loans, loans are not taxable. So the cash values accumulating tax deferred but accessible tax-free and the death benefit, of course as always the death benefit is typically tax-free. There are some circumstances with the structures of a policy that the death benefit could be taxed and we’ll talk about that in a minute. If you look at the cash value Accumulation, it really comes from two components. One component is a guaranteed cash value that earns interest every day forever while that policy is in existence. And then dividends are paid from the company generally on an annual basis and the dividend is not taxable. It’s classified as a return of premium under the Internal Revenue Code And I don’t care what they classified as long as I earn a dividend You know that’s what I want. I want to earn the dividend and I want to earn the interest and then if we look at the dividend, me the owner of the policy, I have several options that I can exercise when it comes to that dividend. I can take the dividend in cash, right? I can leave the dividend to earn interest at the company. I can take the dividend and reduce premiums. I can take the dividend and reduce an outstanding loan balance. I can buy, you know, term insurance with that dividend internally Or I can apply it right back into that policy straight into the paid up additions rider and then just enhance the compounding accumulating effect of that cash value. That’s really what you want to do once you understand how a life insurance policy, structured for cash, works. You know and let’s look at that. Let’s consider this on the dividend, right. Even though a dividend is not guaranteed once the dividend is earned, the value of that dividend cannot go down. That’s very important. Let’s consider a dividend from a stock. Let’s say I bought a stock from XYZ company. Well, I could take the dividend in cash or I could put it into a D.R.I.P., right? A direct reinvestment program. So if I got paid the dividend and I’m in a drip program I’m gonna buy a fractional share of that stock Okay. Well, what’s the future value of that stock gonna be? I don’t know and you don’t know either right? Even the company might not know. Of course they don’t know. So, if I bought a fractional share of stock with the dividend that stock value can go up or down. So you could lose value, right? And it’s directly related to the dividend. The dividend I got paid the dividend. I bought a fractional share of the stock. The stock value went down, didn’t the value of my dividend decrease? Yes. Is that always going to happen? No, but it cannot happen in a life insurance policy. Once the dividend is earned and paid I don’t care where you put it. Right? If you put it into the paid up additions rider of the policy it cannot go down and value that’s pretty powerful. The tax benefits of life insurance If you look at that. The cash value accumulates tax deferred. It’s accessible tax-free. The death benefit is tax-free Now that’s if it’s structured correctly and the premium is paid with after-tax dollars. You know, I hear an awful lot of the times. Well, can I get a deduction to pay the life insurance premium? Well, why in the world would you want to do that? If you get a deduction to pay the premium, then the benefits are gonna be taxable later, right? That’s exactly what you want to avoid. Pay taxes on your money one time and move on. So the tax treatment of cash value is tax deferred and then the cash value though is accessible tax-free. Then the death benefit is tax-free as well. So if you look at and consider the power of the death benefit, the death benefit can give the owner permission to spend the cash value. Or other assets, and/or other assets. Think about that. You have an IRA or 401k with a million dollars. You saved it up for your retirement. You got a tax deduction.. to put the money in, but now you’ve got to pay taxes as the money comes out. Well, once you spend that million dollars what happens it’s gone? Well if I had a million dollars in cash value I can spend that cash value and still leave a remaining death benefit. So if I have life insurance maybe I didn’t die early. Right? I didn’t die prematurely I lived a full long happy life. That death benefit can give the owner permission to spend assets so they don’t have to go through that decision-making process Well, should I go with less today so I can leave something for my children or my grandchildren? No. You give it away to your grandchildren. Enjoy it while you’re alive and leave a death benefit. It should give the owner or can give the owner permission to spend assets they might not otherwise would have spent. That’s freedom Then if we consider another benefit of life insurance. whole life insurance. There are some contractual guarantees that exist in whole life insurance that do not exist in other life insurance types. Okay? There’s what is called a non forfeiture option or non forfeiture options. One of them is the contractual right to take a reduced paid up policy That does not exist in any other form of life insurance. So I have a cash value I can exchange that cash value for a paid up life insurance policy with a reduced death benefit and still have some cash value. That’s very powerful. I can take extended term and there are some other options. My point is there are some guaranteed abilities and options with whole life insurance that does not exist with the universal life, term life, etc… And then of course, there are other benefits, through riders, that you can use pay for and enjoy. Long term care riders, waiver premium riders, other insured riders. There’s other benefits that you can attach to a whole life insurance policy. Long-term care riders. Those are worth investigating on their own. In summary, you know whole life insurance is a contract. Contract is the basis of our society and it’s a unilateral contract. Ein Bahn Strasse (One Way Street), right? The company can’t change anything about that contract. Me, the owner I can change some things very limited on what I can change, but it’s a private asset so I can change ownerships, I can change beneficiaries. But I’m limited on what I can change. Yhe insurance company can’t change anything. And then cash values. Guaranteed cash values. There are primary guarantees and secondary guarantees. Primary guarantees are given by and backed up by the claims paying ability of the company. So the guarantees are provided by the insurance company who issues the polic.y And it’s backed up by their claims paying ability. They’re assets, the secondary guarantee is provided by the state guarantee associations pretty powerful primary guarantees secondary guarantees, and then I have the opportunity to earn a dividend a Tax-free dividend that I can use to accelerate the power of my policy. That’s worth looking at then the tax treatment of life insurance If I pay the premium with after-tax dollars which is What should happen. which is what you should do. Right? the money the cash value Inside the policy grows tax-deferred. It’s accessible tax-free. The death benefit is tax-free Then I have the guaranteed non forfeiture options. I have guaranteed rights and abilities in that contract that does not exist in other companies. Then of course you can add other additional benefits to that through riders that have cost. but the the value that you can add to policies with these riders is well worth the cost.