How to use whole life insurance to avoid taxes and grow wealth
A while back, an acquaintance told me: “I don’t put my money in a bank where it earns no interest. I put it in life insurance, where it has the stability of a bank but earns 5%. I then leverage my life insurance policy to invest in other assets that make my wealth grow even faster.”
How do you make life insurance act as a bank (or cash) equivalent, while borrowing against it to invest in risky assets? And is there a downside to this?
Most people know what life insurance is. But they tend to think of it as term life: fixed payments for 20-30 years that pay out a death benefit if you die before the term is up (while paying nothing if you outlive it).
There’s another type of life insurance called permanent life insurance. It never expires. The most common type is whole life insurance.
Whole life insurance can get very complicated, so I invited a financial planning veteran with extensive experience in it (not affiliated with any insurance company) to share insight on how it works.
This week, I talk with Eric Brotman, CEO of BFG Financial Advisors, a wealth management consultancy, about the intricacies of whole life insurance: who it’s best suited for, its tax and estate planning benefits, and how to use it for investing purposes.
What you’ll learn:
- How a policy his parents bought for him at 14 which he inherited at 24 got him hooked on whole life insurance
- The main tax advantages of whole life
- How whole life is used for estate planning
- The type of securities life insurance companies invest in
- How to choose a whole life insurance company
- How life insurance broker commissions work (and how much they are)
- What paid-up additions are and why they matter
- How to borrow against your whole life policy
- The tradeoffs of borrowing from vs. against your policy
- How whole life can supplement social security in retirement
