Build Generational Wealth with Life Insurance
Life insurance is a way to build wealth by using a life insurance policy as a transfer strategy to your next generation. A policy can cover more than just a funeral, but mortgages, debts and daily expenses.
Building generational wealth goes beyond simply building up a retirement fund or a stock portfolio to pass on to your heirs. Generational wealth serves generations of your family now and long after you’re gone.
HOW DOES LIFE INSURANCE WORK?
Life insurance policies have three main characters:
An owner or policyholder.
The person whose life is insured. This is often the policyholder, but it doesn’t have to be.
The beneficiaries who receive the death benefit. It can be one or more than one.
Life insurance provides a death benefit to the beneficiaries when the insured person dies; this is done in exchange for premium payments from the policyholder. Because your risk of death increases as you age, life insurance tends to be cheaper if you purchase it when you’re younger.
BUILDING GENERATIONAL WEALTH
Rachel Marshall, the co-founder of The Money Advantage, is a proponent of whole life insurance, and she has a personal tale behind it.
“Life insurance isn’t a need product; it’s about creating everything you want for your family. And it isn’t just for a what-if scenario; it’s for when,” she said. “My near-death experience showed me that death is a reality we all will face. We don’t know when.
“If you have a whole life policy, you guarantee that whenever you graduate from this life, you’ll leave behind the greatest gift of love so your family can live out the dreams you planned together — whether you’re there for them or not. For me, whole life insurance is peace of mind that no matter whether I live until tomorrow or until I’m 112, I will deliver the greatest legacy possible to my children — supplementing all the other assets I built during my lifetime.”
Marshall said whole life insurance does double duty.
“All along the way, I have a place to store cash and use it simultaneously, so my money is working in two places at the same time,” she said. “I get tax advantages that (keep) my wealth intact, and my children won’t pay income tax on the death benefits, so they’ll have as great a financial inheritance as possible.
“And, because the death benefit is always more than you’ve paid in, when the life insurance check is used to buy more life insurance in each generation, you create the foundation for tremendous generational wealth.”
HOW TO USE YOUR LIFE INSURANCE
Life insurance can help efficiently maximize the distribution of assets to spouses or partners, younger generations, and charities. A will and/or a trust can assign these assets to beneficiaries. However, these estate-planning tools are not designed to create wealth so much as they are to preserve it.
If you don't have a lot of wealth built up or are looking for a plan to build wealth for your family, then a wealth transfer strategy using life insurance products may be one of the few ways to instantly create wealth and increase the amount passed on to a recipient or beneficiary.
People of all ages use life insurance for different needs. Learn more about different types of life insurance products with examples of how you can use life insurance at different life stages here.
OTHER LIFE INSURANCE BENEFITS
Life insurance has other practical benefits that can assist you during your life and help your heirs after you’re gone, said Tanya Taylor, a financial coach in New York City and the founder of Grow Your Wealth.
“The death benefit can be used toward paying off your estate taxes, instead of selling assets,” she said. “Death benefit can also be used to pay off debt and help with final expenses.”
Additionally, she said, if you own a whole life policy, you can take cash out if you are short of money or impacted by volatility in the stock market. If you own a business, life insurance also helps with succession planning.
Generally, life insurance payouts aren’t taxable, making them an attractive alternative for those looking to leave their family money.
If you invest a life insurance payout and that money earns dividends, it’s important to know that amount will be taxable, so keep that in mind when planning investments.
To calculate the right amount, you’ll need to consider if you have any debts, educational expenses, house payments, living expenses, and funeral expenses that will need to be accounted for first.
Conventional life insurance offers lump sum payments, which will likely need to be invested and will generate higher taxable interest than smaller payouts that you receive over time.
To maximize the benefits of your life Insurance Policy strategy, talk to one of our consultants. In conclusion, life insurance can in fact help you pass down generational wealth for your family, as long as your death is while your policy is active.
