Financial planners emphasize that affluent individuals employ specific strategies to optimize their life insurance policies to enhance financial security and retirement planning. Here are four key tactics they use to make the most of their life insurance investments:
1. Accumulating Tax-Free Dividends with Whole Life Insurance
When selecting a life insurance policy, the choice between whole and term life insurance is crucial. Hazel Secco, a certified financial planner, highlights that whole life insurance can yield tax-free dividends, offering an opportunity to build wealth for retirement. While dividends are not guaranteed, reputable insurance companies often provide around 3% in tax-free dividends. Over time, these dividends can accumulate into a tax-free fund that can be utilized during retirement. Secco advises committing to this strategy for at least 10 to 20 years to fully leverage the compounding effect of tax-free cash value growth.
2. Leveraging Cash Value Component in Variable Life Insurance
Variable life insurance policies also come with a cash value component that can serve as a tax-advantaged investment account. Secco recommends front-loading the policy to allow the cash value to grow and benefit from compounding, especially in younger years. As individuals age, insurance fees increase, potentially impacting the compounding effect due to automatic deductions from the cash value.
3. Enhancing Retirement Planning with Long-Term Care Riders
Life insurance companies now offer policies with long-term care riders, providing additional support for retirement planning. These riders can offer direct payments to nursing homes or care facilities, or even provide income to family members offering care. Integrating long-term care riders into a life insurance policy can boost income during retirement, particularly when long-term care needs arise in later years.
4. Supplementing Retirement Income with Life Insurance Loans
David Peters, a certified financial planner and certified public accountant, suggests utilizing life insurance loans for supplemental retirement income. By borrowing against the cash value of a whole life insurance policy, individuals can access tax-free funds. However, it's essential to note that taking a loan impacts the death benefits of the policy for beneficiaries. The borrowed amount, along with any accrued interest, will be deducted from the death benefits upon the policyholder's passing.
By adopting these strategies, individuals can optimize their life insurance policies to secure financial gains and enhance retirement planning. Wealthy individuals often leverage these tactics to maximize the benefits of their life insurance investments.
—————————————————————————————————————————————
By: insider@insider.com (Jen Glantz)
Title: How Rich People Maximize Life Insurance for Financial Gains
Sourced From: www.businessinsider.com/financial-planner-rich-people-get-more-life-insurance-2024-8
Published Date: Wed, 21 Aug 2024 12:17:02 +0000
Leave a Reply