Most people think about life insurance all wrong.
They think it’s a cost, but it can be a valuable asset.
They think it’s only useful when you die, but it can be incredibly useful today.
They focus only on the death benefit, ignore its current cash value, and miss out on using money that could be available right now.
Don’t worry if you’re guilty of thinking all these things. Until recently, I did too. I was taught that life insurance is all about minimizing the monthly expense, getting the maximum death benefit and then waiting until you die for it to be of any value.
But I’ve learned that it’s possible to flip all of this thinking on its head. And that when you do, life insurance becomes an incredible vehicle for saving money and building wealth. Let me show you how.
How I Use My Life Insurance to Build Wealth
I took out a life insurance policy in 2015 to cover my outstanding debts (student loans and such) in case anything were to happen to me. At the time, I didn’t know much about life insurance, but I knew lots of wealthy people opted to get more cash value early on, so that’s what I did.
These days, my policy has a few thousand dollars of cash value available. Now, what most people don’t realize is that at any time you can take out a loan against that cash value and put that money to work.
So that’s what I’ve started doing, especially for bills that I can pay annually instead of monthly.
So, for example, instead of paying $100 a month for home insurance, I now pay it all at once. I figured out that by doing that, I can save over $200 a year. I used to pay $100 a month ($1,200 a year), but when I pay it in a lump sum, it’s only $950.
So I take out a loan against my life insurance policy, pay my bill all at once, and then instead of paying the home insurance company each month, I simply pay back the loan to myself over the course of the year and I end up a bunch of money ahead.
And that’s just one example. I’m doing the same thing with my property taxes, my car and critical illness insurance, and my phone bill. On just those alone, I’m saving over $1,000 every year, just by leveraging the loan available to me through my life insurance.
The Reason This is So Powerful
This process (or system) for paying for things using your life insurance is really powerful for a few reasons.
1. As I just went through, when you pay bills annually you almost always get upfront cash savings. That’s awesome.
2. As you accumulate more cash value in your policy, you can use it to buy bigger and bigger things. I intend to use my life insurance policies to pay for our next car, family vacations, my kids’ education and eventually part of my retirement.
3. The reason that’s possible is that the cash value in your life insurance policy never stops growing. As you take out loans, the initial capital stays invested and continues to compound year after year after year without interruption. That’s why it’s way better to use your life insurance policy than it is to use cash or a loan from the bank. Using this method, you become the bank and you control all the cash flow. Everything flows back to you, you capture all the growth, and you build way more wealth over time.
How Would This Work for You?
Now, lots of the details depend on what type of life insurance you already have. Or if you don’t already have life insurance, I could walk you through what the best type of policy is to get and how you could jumpstart this process for yourself.
But honestly, some version of this system works for almost anyone in any situation.
For instance, you can use it to fund your TFSA every year (something I’m also doing). You pop out the maximum contribution on January 1st, get that money invested right away and capture all the growth. And then take the money you were going to save each month into the TFSA and put it toward repaying the loan. You get the extra growth by having the money invested right away and all the growth on the money invested in your life insurance policy too.
Or if you already have a bunch of money saved, you can do the process in reverse. Using your TFSA to fund your life insurance policy.
If you find yourself with debt, the same logic applies. You can pop out the money from your life insurance policy, pay off your debt and then pay back the loan from yourself and recapture all that lost interest.
In time, as the cash value available grows, the options get even sweeter. You can use it to buy real estate, or invest in your business. The options are endless once you get the process started. And the benefits only get greater over time.
Who Else Does this?
Like I mentioned, I knew lots of wealthy people opted to maximize the cash value available to them. And as you’ve seen, there’s good reason why. It’s an incredible way to build wealth and to do so in a tax-advantaged way. If your policy is set up correctly, you can take out the loans and not have to pay any income tax on it. Plus, all of the growth inside the policy isn’t taxable either.
All the big banks and car companies use this process with their executives as a financing tool and lots of the wealthiest families in North America use this process to grow their fortunes over time.
Only it’s not just for the wealthy. It’s useful for people like you and me to save money upfront, grow our wealth and afford all the things we want in life in a way better way than using cash or taking out loans from the bank.
This is how you build wealth like the wealthy, and turn your life insurance expense into a valuable, lifelong asset.
If you’re interested in learning more about this process, book a time with me and I’d be happy to run you through the details and figure out how it can play a part in helping you reach your own financial goals faster.