In the world of personal finance, we all know life insurance is an important tool that requires important consideration. If you have anyone that counts on you financially, then you owe it to yourself and them to have life insurance. Life insurance is a risk management tool in this context; it’s how most people relate to it. Now, what about obtaining life insurance like a Universal Life or Whole Life product to diversify your portfolio?
I believe everyone should be invested in various asset classes, such as stocks, bonds, real-estate, precious metals, and yes even life insurance. If you want to know about some advantages that permanent life insurance can provide to your financial plan, read more…
Life insurance instantly increases your net estate value.
With life insurance, what you are worth when you pass away goes up due to the death benefit. Let’s look at a simple case study to illustrate this point.
We have John, he has $25,000 in a TFSA (Tax-Free Savings Account)
$35,000 in an RRSP (Registered Retirement Savings Plan)
A home with a market value of $560,000
A mortgage with a balance of $400,000
Adding up all his assets John’s net estate value is $220,000 not taking into account any fees or taxes paid on the disposition of these assets ($25,000 TFSA + $35,000 RSP + $160,000 in home equity). Now looking at the same example let’s add in Universal Life policy with a death benefit of $200,000. Automatically John’s Net estate value is $440,000 not taking into account any fees or taxes paid on disposition of these assets ($25,000 TFSA + $35,000 RSP + $160,000 in home equity + $200,000 death benefit.)
At its worst, life insurance is an amazing savings tool.
Life insurance products such as Universal Life or Whole Life provide you with savings and investments options. They are competitive to most GICS and traditional investments like mutual funds, segregated funds, or index funds. In the worst case scenario, the money you put will be equal to your “cash surrender value” after a certain period of time, depending on the policy’s configuration. Plus you know you have what again? That’s right – an increased net estate value. The bottom line is, if you can afford monthly contributions for at least 10-15 years that won’t strain you – permanent insurance can be used as a forced savings tool, with good returns all with a death benefit.
At its best, life insurance is a well performing investment.
Your investments in Universal Life insurance policies can be highly customizable – looking for actively managed funds? You have that option. Looking for lower cost funds that use ETF’s and are passively managed? Those options are available to you as well. The beautiful thing about Universal Life is that you have access to a variety of quality funds managed by highly sought out fund managers. Your investments in a whole life are not customizable – but they are stable and paid out as dividends. Dividends paying on a Whole Life pay anywhere from 4-6 percent and have proven to show stable reliable returns for many decades.
Life insurance can provide leverage for future investments and purchases.
Companies of all magnitudes use leverage (in other words, borrowed money) to expand their operations and/or consolidate your debts. Did you know the cash value in your life insurance policy resembles the equity in a home? For example, if you have a cash value of let’s say, $50,000 because you’ve been contributing into the policy for quite some time you now have cash value.
It is your cash value that resembles equity that people may have in their homes. This cash value can act as collateral if you decide to borrow from the cash value. In this instance, a loan will not reduce the cash value of the policy, it will however act as a credit against your death benefit. Cash value also dictates how much you can withdraw from your policy, this would be a cash withdrawal and it would reduce your cash value. On top of the obvious benefits of permanent life insurance, such as the death benefit and the cash value increase, the fact that you can leverage that money or spend portions of it is just another added feature.
In summary, I believe permanent insurance should be part of everybody’s portfolio as allowed. If you are just struggling to make ends meet month to month – permanent insurance may not be wise. However, if your financial house is in order and you’re diligent with your financial plan, there is no reason that a permanent life insurance policy should not be part of it. The benefits available to you if you’re patient and disciplined are far too attractive.