On Valentine’s Day we typically express our love for our significant other with a gift. The idea of gifting the person you love with a life insurance policy is a bit morbid though. Nonetheless, it does certainly say something about how much you value your relationship more than any other gift you can give. One of the great advantages of life insurance is that it allows you to create an estate of substantial size before you’ve actually saved to create it.
But what if you’re single? What if there is no need for you to replace your income or have your mortgage paid in the event of an untimely death? Is there no need for life insurance?
I’ll argue you despite not having a person depending on you to carry on with the life you’ve built together, there is still need for life insurance and specifically a Whole Life policy which I’ll simply refer to as a Cash Value policy. In fact, I’ll give you two reasons.
#1: Tax-Free Source of Funds During Your Working Years
There’s only two realistic places to park cash where it is allowed to grow tax-free: Roth IRA and Cash Value policy.
Roth IRA’s are great for retirement but there are too many restrictions to limit its utility during your pre-retirement years. Limits to annual contributions and if your income is too high, then you can’t contribute at all. There’s also the issue of access to your account balance being restricted to only your contributions, and if you would like to restore the withdrawal, you have only 60 days to do so.
Cash Value policies do not limit you with regards to annual contributions (called premium) or limit access to available cash values for any reason. Higher income earners are not excluded. However, not everyone can have a Cash Value Life Insurance policy. The reason being you must qualify for life insurance. If you are in poor or marginal health, it’s possible to get declined.
Ideally, you have both types of vehicles at your disposal. If you’re thinking a Roth IRA is more important, here are some things to consider.
Don’t discount your need to have a safe place to have available source of money always growing regardless of market conditions. People keep a traditional checking account to pay bills but also to maintain an emergency savings account. A traditional bank is crucial and a necessity for bill paying but not for emergencies when a Cash Value policy provides so much more value:
- better long-term growth
- no 1099’s to report interest
- ability to take policy loans against cash value balance without interrupting growth
- ability to repay the loans with any amount and with any frequency of your choosing
- additional death benefit
- moral reasons: fractional reserve banking contributes to inflation whereas full reserve life insurance companies do not. Society decays when money decays. There is something to be said about not contributing to the problem by leaving only the minimum on deposit at traditional banks to pay monthly bills (plus 2-3 months cushion).
90 days is plenty of time move money from a cash value policy to a bank account when funds can be delivered via Electronic Fund Transfer (EFT) from life insurance companies in 3-5 days.
Your ability to be safe and liquid without an over reliance on a traditional bank during (and after) your working years is as much of a necessity as saving for retirement with a Roth IRA. After all, you have need to finance your lifestyle for ALL YEARS of your life. If you fail to capitalize properly in the best place, traditional banks are all too happy to extend you money via credit cards at 18-25+%. This is a debt trap best avoided.
Remember Mark Twain said: “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
Cash Value policies allow you to be your own banker instead! Learn more by listening to the podcast I co-host: The Fifth Edition.
#2: Tax-Free Source of Funds During Your Non-Working Years
I’ll wager you’ve never considered Cash Value Life Insurance for retirement purposes. It’s not part of conventional thinking when we’re conditioned to save for retirement via government controlled (qualified) vehicles like 401k/403b/457 and IRA accounts. And consider that these qualified retirement accounts offer only one option for income: withdrawals without any hedge for outliving your account balance (no lifetime guarantee options).
Nonetheless, there are numerous additional benefits and advantages to having a Cash Value policy in your overall financial portfolio:
- non-correlated asset
- guaranteed cash value increases each year
- ability to customize withdrawals or take policy loans for tax-free income
- ability to annuitize cash value for guaranteed lifetime income
- availability to have access to the death benefit as an additional source of funds due to terminal or chronic illness
- ability to combine with other assets like 401k/IRA’s to create additional retirement income strategies that produce more income than 401k/IRA’s will provide on their own:
- Covered Asset Strategy
- Volatility Buffer Strategy