Taking out loans against their assets is a common strategy wealthy people use for two reasons.
One is that it allows the asset to continue growing in value (rather than selling it).
And the second is that the loan isn’t treated as income (and thus isn’t taxed).
So you get to stay invested and receive favourable tax treatment for the cost of the interest on the loan (which itself can be a tax write off if the money is used for investing).
Perhaps the most common example that gets talked about online all the time is Elon Musk taking out loans against Tesla shares to buy Twitter.
But of course, most normal people don’t have those kinds of assets lying around, which is where Whole Life Insurance comes in.
Whole Life Insurance is a product with the same features. It reliably grows over time and it accumulates a cash value that you can access through policy loans in a tax-advantaged way.
We help clients build a system around Whole Life policies to help fund major purchases in their life (like vacations, cars, home renos, other investments, etc.), to accumulate a tax-efficient source of retirement income, and to build wealth for the next generation.
It’s a strategy I’m using myself, and if all goes to plan, my kids will never have to rely on a bank for a student loan, car loan, line of credit, or even a mortgage.
We’ll use Whole Life policies to fund all of our purchases because it’s tax efficient, it minimizes opportunity cost (rather than using cash and missing out on all future growth), it allows us to recapture the interest you would typically pay to the bank or car company, and it reliably lifts the floor of our wealth.
Using Whole Life policies is the most efficient way to fund your purchases, make other investments, and build your wealth, just like the wealthy.