One of our 7 Principles of Prosperity™ is MULTIPLY. Of course, we all want our money to multiply! But how—especially in such a volatile environment? The secret to multiplying your money is getting it to work harder… doing multiple jobs!
The truth is, we are trained to do the OPPOSITE with our money.
Certain dollars go in the retirement account bucket. Other dollars go in the 529 college education bucket. Emergency fund savings over here; life insurance over there. And don’t forget the long-term care bucket, the saving-for-a-down-payment bucket, and the vacation fund bucket!
While humans may be more productive doing only one task at a time, this is not true with money! Money works best when it can do multiple jobs.
Perhaps nothing has driven this point home more than the events of 2020. All of the sudden, many Americans have found themselves out of work or struggling to keep an ailing business afloat. Yet their cash is locked up. It’s in retirement accounts, 529 plans, perhaps even in their homes—especially for those who have been pre-paying mortgages.
Perhaps dividing up your dollars where they are used for a single purpose made sense at the time. But when the unexpected strikes—and it will—it leaves you with little flexibility.
How many people are now out of work and they have money locked up in a 529 plan or Health Savings Account? How many people need a cash infusion to save a business—but they can’t access their home equity? (Note: banks lend money most easily to those who need it the least!)
As we wrote in an earlier article, many are “saving too much in all the wrong places.” And who knew we would need a “pandemic bucket” and government lockdown insurance!?
So what’s the solution? You need to save your money where it can multitask!
The Financial Swiss Army Knife
The Swiss Army Knife is a pocketknife or multi-tool manufactured originally by Victorinox in 1891. The term “Swiss Army knife” was coined by American soldiers after World War II due to the difficulty they had in pronouncing “Offiziersmesser,” the German name.
A Swiss Army Knife is a symbol of utility and smart design. There are many versions of the iconic knife, which features a main spearpoint blade plus various other tools. It replaces a myriad of other tools, providing efficiency and flexibility. With a Swiss Army Knife in your pocket, you can cut a rope, install a screw, open a bottle of wine, and accomplish 100 other tasks! And best of all—the tools are there when you need them, not locked away in a toolbox.
The truth is, everyone needs a multi-purpose financial fund. You should have access to money that can be used in a myriad of ways, depending on the circumstance. Ideally, this multi-purpose fund would:
- defer or potentially eliminate taxes
- grow money faster than a bank account
- provide privacy for its owner
- offer a source of substantial cash—no qualification needed.
- protect a family from devastating loss
- have the potential to provide substantial cash flow in one’s later years.
A key reason we recommend whole life Insurance is exactly this flexibility and utility. A dividend paying insurance can serve an unlimited number of purposes, giving you access to cash when you need it. It offers death benefits and—depending on riders—important living benefits as well.
How Your Money Can Do Multiple Jobs
Some of the “jobs” your money can do in a whole life policy include:
1. Consistent, tax-advantaged saving.
Whole life helps people save more because it is “a savings account that shows up like a bill!” It establishes saving money as a priority. (And yes, there are ways to pause premiums for a time if necessary… no need to cancel a policy.)
Over the long-term the growth compares very favorably to the interest rates banks pay. As an added bonus, you are not taxed on the growth as long as the policy stays in force! Otherwise, growth from the policy would be tax-deferred much like an IRA.
2. Offer quick, low-interest loans.
You can borrow against the cash value of your policy for any reason. There’s no credit check, employment requirement or other qualifications needed because your policy provides collateral. Interest rates are determined by the life insurance contract and are currently in the 5 to 8% range.
And since you are borrowing against your cash value, it continues to grow according to the company’s guarantees and dividends! (Dividends are not guaranteed but are historically reliable.)
3. Provide benefits in case of disability, terminal or chronic illness.
Many people do not realize that life insurance policies can come with optional riders with these benefits. Your policy can pay your premium if you become disabled or allow you to access your own death benefit in the event of certain diagnoses. (Contact us for more information and a policy illustration.)
4. Leave a legacy.
Whole life offers a permanent death benefit that allows dependents and spouses to continue on with their lives should they lose a loved one. It is a “self-fulfilling savings plan” that ensures future mortgages will be paid, students can go to college, even certain causes funded—no matter what. And when spouses and partners are both insured, they are both assured that the survivor will be provided for!
In most cases, death benefits are passed on to beneficiaries tax-free. (Those who exceed estate tax exemption limits would be an exception.) In contrast, inherited IRAs or 401(k)s can force your heirs to pay a huge tax bill to access the money!
5. Creating income for the policy owner.
What if your children are grown and doing well, you are widowed or single, and you’d like more cash flow in your later years? How can a policy help you then?
As mentioned, whole life companies have a history of paying dividends. At times, these dividends have been substantial. But there is another, perhaps even more attractive option if income is a greater desire than a policy’s legacy benefit. You can annuitize your whole life policy, converting it into a single-premium immediate annuity!
Now, we would ONLY recommend this for policy owners who are at least in their 70’s. The older you are when you take an annuity, the more it will pay! Find out more about how an annuity can create income for life with greater safety than dividends and more cash flow than a CD or other bank products can provide.
There are limitless ways to use whole life insurance.
There are so many ways your dollars can be put to work in a policy, we wrote a whole book about it! Live Your Life Insurance is an easy-to-read little book that provides many examples of why whole life insurance truly is a financial Swiss Army Knife!
Contrary to popular opinion, whole life insurance is not just “death insurance.” It provides policy owners more benefits and flexibility than any other financial product we know of. That’s why we say it is an ideal financial foundation and the perfect complement to other investments.
Want to know more? Contact Partners for Prosperity today! For more than 20 years, we have helped clients with life insurance, self-directed IRAs, and building wealth without the typical stock market risks.
—By Kim Butler and Kate Phillips
Disclosure: Our content is meant for educational purposes only. While it’s our goal to help you learn about building a life of prosperity, we do not intend to provide financial advice. Please consult your financial, tax or legal advisor before making any investment or financial decisions.