By Olivia McGraw|Unbridled Wealth
Common financial advice from prominent figures says “buy term life insurance and invest the difference.” As a life insurance broker, I cringe for several reasons every time I hear this statement. In my opinion, this statement is misleading at best.
Let’s start with why this appears to be true. Traditional permanent life insurance is expensive. It is commonly seen as something only accessible and necessary for the wealthy. The wealthy often only view it as only an expense and consider their personal assets as enough inheritance to pass along to the next generation. So why “waste” money on something not needed? Term insurance is inexpensive for a defined period of time and will cover outstanding debts should the worst happen while the insured is young. However, 98% of term insurance never pays out. This is great news! It means that 98% of those insured live beyond the term of coverage. This is also why it is inexpensive. Don’t get me wrong – there is a place for term insurance. I personally have a term policy, however, I plan to convert it into a permanent policy in the near future. That’s because I know something the financial gurus don’t know which is how to properly structure a permanent policy.
The above adage is misleading because it does not understand how to properly structure a policy. A properly designed permanent policy will allow cash flows early, contain significant tax advantages, and give the policy owner the ability to use the money in more than one place. For instance, my husband and I already own one of these. While we are covering our family if the worst happens, we also have access to the premiums. After only having our policy for a year we used the cash value in our policy to buy our car. Then without even fully paying back our policy loan, we’ve taken out another loan to purchase an investment property. The best part is that while we are paying off an amortized policy loan, the entire cash value in our policy grows at compounding interest as if we never took out the money. This is what the gurus do not understand.
Advising the masses to simply buy term insurance and invest the difference is a catchy phrase but ill-advised if you understand how and are able to make money in more than one place. Why pay a pure expense of term insurance when you could make money in a policy and other investments? This is why many call a properly structured permanent insurance policy the “And Asset.”
Many of our clients are taking advantage of one of the best-kept financial secrets. They are using their money both inside their policy that has guaranteed returns and also outside which exponentially increases their profits. Savvy investors take the time to understand how and why this works. The question then quickly changes from “how little does it take to get started” into “how much can I get into the system ASAP?!”
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