(Hint: it’s more than just a protection tool!)
Do you own life insurance? Should you own life insurance? If there's a reason to have coverage to protect liabilities in the event of your death, have you ever looked at life insurance as a tremendous tool to build wealth, and in some cases be even better than many retirement accounts that are available?
When you look at life insurance, proceeds upon death are not taxed. Unless you would convert IRAs to Roths, you will have to pay income taxes on those distributions. And where do you think taxes are going? There's also increased taxes based on the size of your retirement plans. So traditional plans may need to have a second look.
Many people -- once they own life insurance for a period of time – understand that it's not some kind of expense or obligation that they have to pay, but rather an investment opportunity.
Let’s look at Whole Life Insurance
In whole life the life insurance policy is not at all tied to the stock market. I always tell my clients that life insurance is very leverageable. What that means is that one dollar buys hundreds (or even a thousand) of dollars of death benefit. So oftentimes, not only can it be a tremendous tool to supplement income and retirement on a tax-favored basis (through accessing the cash value of a permanent life insurance policy,) but the life insurance benefit can be used to create liquidity upon an individual's death, pay an individual's debt upon death, and perhaps have some type of estate equalization between families.
Market Volatility
Think about how volatile the market has been, and many of our clients have assets under management in the market. Over the last 12 months, look at how volatile our market has been. In 2022, the S&P lost over 20%. Imagine if this was the only place you had your wealth accumulating; and then it was time to take income. Not only do you have a loss, but an income distribution need to buy groceries and pay the bills -- a double whammy in loss and difficult to recover. Of course, the past performance of the stock market is no indication of its future results.
Cash Value
Wouldn't it be neat if you had something that was accumulating value at a steady minimum level? And, could be accessed? Most people realize after owning cash value life insurance for several years, that if they could turn the clock back, they wish they'd done more.
When I review with clients who have had their insurance portfolio for over 30 years, it's a common comment. The cash value of a whole life policy grows on a guaranteed and nonguaranteed basis.
Therefore, when looking at a retirement planning model, life insurance really should be considered not only just a protection tool, but an integral part of anybody's future retirement plan.
Brian Ruh Owner, Financial Adviser