Life insurance can do more than protect your loved ones from financial strain when you die. It also can help you build wealth. Thoughtfully purchasing coverage gives you the ability to build wealth during your lifetime. Additionally, it can help your family build generational wealth after you pass away.
Here's a closer look at the different types of life insurance and insight into how to use life insurance to build wealth.
Types of life insurance
The two basic categories of life insurance are term and permanent.
Term life insurance can help your family
Permanent life insurance offers a guaranteed death benefit as long as you pay your premiums and the policy retains it's value. This can provide your loved ones with a sizable payout upon your passing. But that's not the only advantage this type of coverage offers. Permanent life insurance may give you the opportunity to earn dividends and potentially grow cash value during your lifetime.
How to leverage life insurance to build wealth
Fixed cash value life insurance can help you build wealth when you use it as a separate asset class in a diversified financial portfolio. Of the three types of permanent life insurance mentioned earlier, only whole life offers fixed cash value. The cash value of universal and variable universal life contracts can change.
For the rest of this article, we'll be focusing on whole life insurance with accumulated value (another word for cash value) that is fixed.
Withdraw cash value from your life insurance contract
You may be able to
This money can be used however you wish, such as purchasing other appreciating assets that can be left to your loved ones, beneficiaries and favorite causes upon your death. Just keep in mind that taking money out can reduce your contract's death benefit by the amount you have not repaid.1
Distributing the life insurance death benefit
Along with helping to build wealth during your lifetime through potential cash value accumulation, life insurance can help to build generational wealth after your passing thanks to the
How cash value accumulates in whole life insurance
Cash value accumulates over time in two ways:
- A portion of each premium you pay adds to your contract's cash value.
- Your cash value earns a guaranteed rate of return.
Cash value accumulates slowly when you haven't had your contract for very long. More of your premium goes toward insurance than toward cash value at first. Over time, more and more of your premium goes toward cash value.
Creating a lasting legacy with life insurance
Strategically using life insurance to build your cash value and using that money to create more wealth is a great way to establish a legacy that will last long after you've passed. Thrivent's
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