The cash value life insurance is a little known secret for real estate investment or anyone planning their retirement.
The indexed universal life is the best investment vehicle. Why?
Cash value life insurance, as in its name, is life insurance with cash value. Similar to a savings account associated with your life insurance. The difference is this “savings account” grows tax-free as part of the life insurance.
This is the bonus for real estate investors. Short on cash. Borrow from your cash value account interest free. How does that sound?
Let me clarify this a little. Every cash value insurance policy is different. Most charge interest rate for borrowing. But some charge more and some charge less. The one that I have, charges 0.75% for first 1-9 years, then 0% after 10 years.
The other thing is when you borrow money from your cash value, you’ll not taking money out from your account, you’re borrowing against your cash value, which is being used as a collateral for your loan. This is an added bonus, because your cash continues to grow tax-free while you’re enjoying your extra cash interest-free.
Another bonus with borrowing from a cash value life insurance is that you don’t have to repay your loan it you don’t want to. How? Good questions!
Remember it is a life insurance policy. So it also has a face value. When you die, the insurance will pay off your loan with your policy’s face value.
Isn’t this a great idea? People always think that life insurance only benefit the family after you diet, but with a cash value life insurance, you got to benefit from it too before you die.
Need help with retirement planning?
Many wealthy people use a cash value life insurance for their retirement planning. Say you pay your insurance premium every year and contribute to the cash value at maximum level every year for thirty years, and never taken any loans out. Now you’re 65 years old, and ready to retire. By now your cash value should have grown significantly over the years TAX-FREE. Now you can stop paying premium, because your cash value is be used to pay your premium, and at the same time pay you money for the living expenses. Again, this pay-out is given in the form of a loan, so the cash value continues to grow while you enjoy your retirement, and you do not pay tax. Remember, Uncle Sam taxes earnings only when you withdraw it, but not loan interest.
With that all said, you might be wondering what’s the best cash value insurance?
I would have to say hands down the index universal life. This is like the Rolls Royce of life insurance. What make this particular policy so special is that your cash value never loses money. The one that I have tracks the indexes of Europe, Hong Kong and US – Euro Stoxx 50, Hang Seng and S&P 500. As investor, you probably knows the risk of investing in stock markets – the ups and the downs. In this product, there is a floor of 1%, which means, even if the stock market tanks, I still get 1% return on my cash, and the ceiling is 13.75%, the maximum return I can get. I think this is pretty good deal because when you lost 5% in the stock market, you need a 10% return to regain what you lost. With this policy I have no loss, only gains.
The only CONS: you have to be qualified, which is good health.