In Tom’s book, “The Win-Win Wealth Strategy: 7 Investments the Government Will Pay You to Make,” he details the benefits of using life insurance as an investment to grow your wealth.
To expand on this further, he discussed life insurance with Kim Butler in a podcast episode on the WealthAbility for CPAs Show called “Live Your Life, Insured”. Here are some of the things he and Kim covered.
First, what’s term life insurance?
Term insurance is designed to provide your family with protection in the case of an accident within a specific period of time. Payout will occur if you die during that term of time. According to Kim, term insurance is income tax free, but has no asset value. However, Tom sees it as an expense from an accounting standpoint. Businesses can also receive protection through term life insurance.
What’s whole life insurance and what are the benefits of owning whole life insurance?
Whole life insurance is considered a safe, liquid asset. One benefit from this type of life insurance is it is income tax free, and you can achieve tax free growth. With whole life, your policy has a cash surrender value (CSV). Additionally, you’ll never pay taxes on the policy’s CSV unless you cancel it; then it becomes taxable. Finally, you’ll never pay taxes on the growth of the cash value. Whole life insurance is designed to be used for your whole life and pays a guaranteed 100% that is income tax free.
Let’s explain how you can leverage your policy’s CSV for your investments:
Utilizing your whole life insurance policy’s CSV as collateral to borrow tax free is a great thing. Through borrowing against the CSV, you have an asset that will keep growing and you can control the payback structure. Your whole life policy allows you, the owner, to use your CSV as collateral for a loan.
These borrowed funds can then be used to invest in business, energy, real estate, etc. Utilizing the CSV as collateral, you can borrow tax free. Using it for those investments allows you to deduct the interest. Since the money is used for the investment, the interest paid to the insurance company is deductible. Remember that how you use your money determines how you deduct interest.
Like the Fed, you can increase your money supply through increasing your credit availability. You can do this through leveraging your CSV. You can create money, and this is how real estate and life insurance are similar and easy to use as collateral as it grows in value over time and provides additional credit to grow and use to buy additional investments.
Life insurance is just one of the types of investments you can use to reduce your taxes and increase your wealth. To learn more about it and to learn about the other investments for which there are tax incentives, check out Tom’s book, “The Win-Win Wealth Strategy: 7 Investments the Government Will Pay You to Make.” And to be connected with a CPA who can help you create your own tax and wealth strategy, book a call with the team at TFW Advisors® today!