Ricran Senior Financial Services

A private practice in Naples, FL protecting your assets and family since 2007, we explain what is available by law allowing you to make a choice.

Burial     Estate Planning     Term     Whole Life     Medicare

Building wealth with life insurance is primarily done through permanent life insurance policies (such as whole life or universal life), which accumulate a tax-deferred cash value that you can access during your lifetime. This approach is often considered an alternative or complement to traditional investments and is particularly popular for estate planning and high-net-worth individuals.

How Cash Value Accumulates - A portion of each premium payment you make is put into a cash value account, which grows over time in a tax-deferred manner. The way this value grows depends on the type of policy:

Whole Life Insurance: The cash value grows at a guaranteed minimum interest rate. Some mutual insurance companies may also pay dividends, which can be used to buy "paid-up additions" (small amounts of additional insurance) that further increase the cash value and death benefit.

Universal Life Insurance: These policies offer more flexibility in premiums and how the cash value earns interest, which can be a fixed rate or tied to market performance.

Variable/Indexed Universal Life (VUL/IUL): These types allow you to invest the cash value in various subaccounts (like mutual funds or market indexes) for potentially higher returns, but they also carry more risk.

Strategies for Accessing and Leveraging the Cash Value - Once sufficient cash value has accumulated, typically after several years, you can use it in several ways:

Policy Loans: You can borrow against the cash value, often tax-free, without a credit check. These loans accrue interest and, if unpaid, will reduce the death benefit your beneficiaries receive.

Withdrawals/Partial Surrenders: You can withdraw funds from the cash value. Withdrawals up to your "cost basis" (the total amount you've paid in premiums) are generally tax-free. Withdrawals of earnings or gains, however, may be taxable and will reduce the death benefit.

Supplement Retirement Income: The accumulated cash value can provide a source of income in retirement to complement other savings like a 401(k) or IRA.

Collateral for Other Loans: The cash value can be used as collateral to secure loans from other lenders, potentially helping you get better loan terms. And, you pay back yourself the interest a 3rd party would charge making money from yourself!

Building Generational Wealth and Estate Planning - Beyond living benefits, life insurance is a powerful tool for transferring wealth to heirs efficiently:

Tax-Free Death Benefit: The death benefit is generally paid out to beneficiaries income tax-free.

Estate Tax Planning: For high-net-worth individuals, properly structured life insurance can provide liquidity to pay estate taxes, preventing the forced sale of other assets (like a family business or real estate).

Irrevocable Life Insurance Trust (ILIT): Placing the policy within an ILIT removes it from your taxable estate, allowing the death benefit to pass to heirs without being subject to estate taxes.

Important Considerations - "Buy Term and Invest the Rest": Many financial advisors suggest buying less expensive term life insurance and investing the difference in a standard, high-growth investment account like a 401(k) or IRA, arguing that the returns on permanent life insurance investments are often lower. But they conveniently forget to mention CFP fees, reallocation fees and who actually controls your investment choices... ask about our own personal family experience...

Fees and Costs: Permanent life insurance policies have higher premiums and can involve various fees and charges, which can affect wealth accumulation. Modified Endowment Contract (MEC): If a policy is "overfunded" with premiums too quickly (violating IRS rules), it becomes a MEC, which eliminates some of the tax advantages of withdrawals and loans. 

Consult a Professional: You can't teach experience, building wealth with life insurance is a complex strategy. It is critical to work with a consultant to determine if this approach aligns with your specific financial goals and risk tolerance. Elderly folks with no assets can purchase a final expense policy and leave $5k, 10k, 25k to their beneficiary with low monthly premiums. Call now,  leave a msg, we will call back asap. Marketers and scammers will not be tolerated.

Licensed by the Florida Department of Financial Services