Top Reasons for Owning Cash Value Life Insurance: #2 Leverage

cash value life insuranceFinance is a funny topic. For some it means little more than buying some low cost index funds and not accumulating massive amounts of debt. For others it’s mostly about contributing to a 401k or traditional IRA so they can raise a middle finger to the IRS (but the IRS may get the last laugh). For us, it’s a game of strategy.

A semi-complex circumstance that requires foresight and focuses on bigger picture considerations rather than drill hopelessly into situational (and most commonly transient) event. The game is best played when one can gain an upper hand. And few financial products bring leverage to the table like cash value life insurance.

The Key that Unlocks Doors

Permanent life insurance is the key that unlocks doors to an array of options others commonly wish they had. It unlocks assets and provides the liberty to access money in a way that can seriously augment retirement income, and this has nothing to do with using life insurance for income purposes.

Keep in mind that what life insurance does at its most fundamental application (indemnify a loss) can be employed in a multitude of ways. We all know the most obvious situation involving the indemnification of lost wages when someone dies prematurely, but there are several other indemnification opportunities that life insurance (specifically permanent life insurance) brings to the table.

Opening up other Assets

Remember when reverse mortgages were all the rage? The only draw back was the fact that you had to essentially give up your house when you died. A small price to pay to ensure you aren’t on the Meow Mix Diet and the kids don’t care about the house anyway, they just want to make sure that you are okay and living comfortably.

But what if you had the ability to take the reverse mortgage and ensure that money existed to repay the mortgage when you died?

Or what about the way you withdraw money from your other assets. For many people this is a painful dilemma made so difficult by the fact that they don’t know when they are going to die and when there is a spouse in the picture we can’t simply leave him or her to figure it out afterwards. Permanent life insurance enables more liberal access to funds in retirement (apologies for the terrible recording quality, it's an old video):

And of course, there’s the well established Pension Max. A method for retirement income optimization we’ve been using for years, and a method that works way better if you buy the permanent life insurance earlier in life.

Retirement is Expensive

For most Americans, the single most financially disastrous event in their lives will be retirement. You spend umpteen years slaving away for the man and socking away money so that one day you take that nut and systematically piss it away. We do this willingly and intentionally.

But what if we could recoup some (or all) of the expense associated with retirement? Impossible? No.

The same product that you use to ensure your spouse and kids are taken care of financially if you’re not around, can be used to ensure your hard earned money accomplishes more than just buying bingo cards and prescriptions meds.

Accessing the Death Benefit before you Die

In addition to having the ability to act as a backstop to your finances in retirement, permanent life insurance contracts often have accelerated death benefit options that are generally automatically issued on a contract.

These benefits provide access to the death benefit prior to the death of the insured in the event the insured becomes terminally or chronically ill. These benefits can be a great complement (and in some cases a surrogate) to Long Term Care Insurance.

Cash value life insurance is a powerful financial tool that can accomplish an array of goals and placing it in your quiver (when done correctly and appropriately) can make you incredibly well prepared for whatever the future may hold.


4 Responses to “Top Reasons for Owning Cash Value Life Insurance: #2 Leverage”

  1. Mordy says:

    Great Stuff!

    I just have one thing nagging me, why shouldn’t I put the full $15k into my retirement plan, the day of my retirement just roll that over into a SPIA & live like a bandit with $75,000 a yr?

    • Brandon Roberts says:

      Hi Mordy,

      While it would be awesome if I could remember every detail of every discussion on the Insurance Pro Blog, I don’t. So, unfortunately, I have no idea what this is in reference to. If you’d like to elaborate a bit more, I’d be happy to discuss.

      Thanks.

      • Mordy says:

        Thank for your prompt response.
        I was referring to the discussion where someone who is contributing $15k to his retirement plan. You brought down this great strategy where he should continue to contribute $10k to the retirement fund while diverting the other $5000 to a Whole Life policy paid up at 65. At age 65 even though the fund along with his cash value was $130k less than the original way he was allocating the monies, you introduced at this point a SPIA which gave him over 20% (can even go as high as 45%) more income ($51,000) If we’re bringing a SPIA into the mix, why can’t he just take keep on contributing the full $15k to the retirement fund and then put all the monies into a SPIA which will give him about $75,000 a year?

        • Brandon Roberts says:

          Legacy is the biggest reason why he might not want to go all in on the SPIA. The point here is that you owning life insurance removes the question about the SPIA not paying any money to anyone else after he dies. But it’s more complex than just this.

          There’s additional risk in placing all of the money in one sort of asset class or even a mix of asset classes that are similarly exposed to systemic risk as well as other forms of risk. Life insurance in this case (actually in a lot of cases) leaves options open.

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