The secret to building wealth is saving more money, right? Technically, yes. The more money you make AND save, the more wealth you can build. You’ll be able to partake in new opportunities and increase your wealth trajectory. However, without wealth protection strategies, it’s like building your financial future on sand. The question becomes: How safe is your money? And while things might turn out okay in the end, most people aren’t happy with those odds. It’s much easier to sleep at night and live your life when you’re not worried about all the possible “what if” scenarios. If you want to add certainty to your wealth building, then you will want to incorporate wealth protection strategies.
What is Wealth Protection and Why is it More than Just Saving Money?
Wealth protection is a term that refers to all the possible strategies and assets you can employ on your wealth-building journey to protect your money. While we prefer to think on the positive side of things, for this example we must start by thinking of all the things that can eat into your wealth over your lifetime. Lawsuits, divorce, health complications, taxes, natural disasters, death of a loved one… those are just a few examples.
While you may not be able to stop some of those things from happening, what you can do is have assets, structures, and strategies designed to protect your wealth. By having these in place, you can prevent any major financial drains. In turn, you don’t have to think about all the negative “what ifs.” Instead, you can continue your journey to financial freedom with a Prosperity Mindset, because you’ve addressed the fear.
The Role of Wealth Protection in Wealth Building
If you’re not yet convinced that protecting your wealth is as important as building wealth, consider this… Imagine your journey to saving money and building wealth is like a line chart that keeps climbing. If everything in your life went perfectly smooth, you’d reach your maximum potential. Yet, how many things have to go wrong for you to lose that maximum potential? You may come close, yet that’s not quite the same as hitting the mark.
Employing strategies that protect your wealth can increase your odds of hitting that maximum potential. Chances are, you’d rather have a 100% chance of reaching 95% of your maximum potential than a 50% chance of reaching 100%. We’d like to think the odds with the proper wealth protection strategies are a bit more enticing.
So what’s the catch? Well, there isn’t necessarily a catch, so much as an understanding that everything in life is a trade-off between cost and risk. If you want to reduce your financial risks, there are going to be costs for that. However, those costs generally pale in comparison to the cost of losing it all when you don’t have any protection strategies in place.
Protecting Family Wealth
In addition to protecting your personal wealth, you can apply these same principles to protecting family wealth. If you intend to leave a sizeable inheritance to your children, or even employ Perpetual Wealth strategies for generations, take note. These strategies we share can help you transfer as much wealth as possible to your heirs. Not only that, it can help you set up your family’s financial structure for generations, by creating structures for how to use and protect the family’s wealth.
When your wealth transfers from you to the next generation, there are several “wealth eroders” to consider. The first is taxation—the money you leave can be subject to income tax, estate taxes, and much more. By the time that money reaches your heirs, it may be significantly reduced. If your heirs are minors, things can get even more complicated. Fortunately, with the right strategies, you can avoid money going to the courts. In fact, certain strategies can protect your money from other prying eyes too, like debt collectors.
As you proceed on this journey of wealth protection, think of the big picture—not just your personal wealth, but the family wealth, too.
Wealth Protection Strategies
Want to start protecting your wealth and your family wealth, too? Here are some wealth protection strategies and assets that you can use to mitigate financial risks in your life.
Whole Life Insurance
If you want a vehicle to protect your wealth as you build it, look no further than whole life insurance. First and foremost, whole life insurance is insurance that protects your income. This means that if you die, your family receives a death benefit. If you insure yourself to your Human Life Value, then this death benefit provides coverage equal to about 30x your income (give or take). This death benefit is income tax-free to your heirs.
In other words, you are protecting family wealth against your death or loss of your income, with the bonus of protecting it from income taxes.
Whole life insurance also has many uses while you are living, too. Many people use whole life insurance as an emergency fund or an opportunity fund, thanks to the cash value component. As you pay premiums, your cash value increases. You can then use this cash value via a policy loan. The cash value has guaranteed annual growth, and also earns non-guaranteed dividends. This growth is not correlated to the stock market, which means you can be certain you won’t lose money.
Finally, whole life insurance is a private asset. This means that creditors, the IRS, and other institutions cannot “see” how much money you have in your cash value, nor can they acquire it by any means. You don’t have to split life insurance in a divorce. And you don’t even have to report it on a FAFSA form, though you can use funds to support college costs.
Estate Planning and Trusts
Another essential component of wealth protection is estate planning. When you think of estate planning, you probably think of drawing up a last will and testament. While this is certainly a part of it, it’s also so much more than that.
In addition to wills, estate planners can also help you set up trusts. Trusts are legal arrangements designed to hold assets on your behalf. Placing your assets under the ownership of a trust, rather than yourself, can actually advance your wealth protection and building goals significantly.
For example, if you want to transfer assets like a life insurance policy with as little taxation as possible, consider an ILIT, or irrevocable life insurance trust.
Ultimately, trusts are used to make certain that your assets go where you want them to go in the event of your death. They’re “stronger” than a will, which means that they can keep your assets out of probate, which can be an expensive way to execute your last wishes. And in life, you can protect these valuable assets from creditors by having them owned in a trust. That way they’re not included in your estate, and cannot be seized.
Umbrella Insurance, etc.
Want to protect yourself against liability? You’ll want to have some good umbrella insurance. Essentially, umbrella insurance covers most things that aren’t covered by the rest of your insurance. So of course, you want to have good insurance for assets like your car, your home, your pet, your health, and any other property. These types of insurance may seem like an inconvenience, however, they can save you some major money on unexpected emergencies. And that’s the thing about emergencies—they’re generally unexpected.
Umbrella insurance, on the other hand, covers most other things. It’s a type of liability insurance, which essentially means it can cover costs for anything you might be legally responsible for.
If you hire a dog sitter, and they get injured on your property while you’re away, umbrella insurance can cover those costs. This is true if they take legal action, as well. If you’re liable for a car accident that your car insurance doesn’t completely cover, umbrella insurance can help. While there are some exceptions to what umbrella insurance covers, it can save you hundreds of thousands of dollars in an emergency.
Get the Most from Your Wealth Protection Strategy
There’s a lot that goes into wealth protection, and most people don’t consider it until it’s too late. And while there’s nothing like hindsight to convince you to adopt some wealth protection strategies, we’d rather save you the trouble altogether.
For more thoughts on wealth protection strategies, see: Protecting Your Assets from Lawsuits and Judgements, as well as Part 2.
If you’d like to get started with the most certain wealth-building and protection asset we know, connect with us to get a personalized whole life insurance illustration today.