Jake Thompson's Life Insurance: Build Wealth
Are you looking for innovative ways to build and protect your wealth? Have you considered the potential of cash value life insurance as a financial strategy?
In his book Money. Wealth. Life Insurance., Jake Thompson reveals powerful insights into leveraging life insurance for wealth building. Jake Thompson's life insurance strategies offer a fresh perspective on this often-overlooked financial tool. You'll discover how wealthy individuals and major corporations use these policies to their advantage.
Read on to learn how you can apply Thompson's wisdom to your own financial planning and potentially transform your financial future.
The Power of Cash Value Life Insurance
Jake Thompson's life insurance insights, as revealed in his book Money. Wealth. Life Insurance., show how wealthy individuals and corporations leverage cash value life insurance as a powerful tool for building and protecting wealth. Let's dive into Thompson's perspective on this often-overlooked financial strategy.
A Time-tested Financial Tool
Cash value life insurance has a long history dating back to ancient Rome. It's proven to be a stable financial instrument, even during economic turmoil. During the Great Depression, when many sectors struggled, life insurance companies remained strong. Policyholders continued to see profits year after year, a trend that continues today.
You might be surprised to learn that influential figures like Walt Disney and JC Penney used life insurance as an effective savings mechanism. They recognized its potential to safeguard their economic well-being and accumulate significant wealth.
How Banks and Corporations Use Life Insurance
It's not just individuals who benefit from life insurance policies. Major corporations and financial institutions in the United States strategically use them too. They employ Bank-Owned Life Insurance (BOLI) and Corporate-Owned Life Insurance (COLI) as essential tools in their fiscal strategies.
Many leading Fortune 1000 companies, including numerous banks and corporations, use these policies to provide retirement benefits for high-ranking executives and achieve other financial goals. Companies like Bank of America, Wells Fargo Bank, JPMorgan Chase Bank, and U.S. Bank have allocated billions into life insurance policies. They recognize the role these policies play in enhancing a bank's solidity and financial strength.
It's not just financial institutions, either. Major corporations like General Electric, Walt Disney, Procter & Gamble, and Johnson & Johnson have also adopted insurance products designed to provide life coverage. They've recognized the steady increase in value and the possibility for enhanced worth over time.
Tax Advantages of Cash Value Life Insurance
One of the most significant benefits of cash value life insurance is its tax advantages. Let's break down some of these benefits:
Tax-free Growth
The growth in cash value isn't taxed. This sets life insurance policies apart from many other investment vehicles. As long as you keep the policy active, its value will consistently grow and maintain its tax-exempt status.
Here's a practical example: If you're paying taxes at a rate of 30%, the actual gains from a life insurance policy with a 6% yield are equivalent to an 8.6% yield when factoring in taxes. That's a significant difference!
Tax-free Death Benefit
When the insured person passes away, the beneficiaries receive a tax-free sum. This means your loved ones can receive wealth directly and without delay, bypassing probate expenses and income tax payments on the inherited amount.
Protecting Social Security Income
Cash value life insurance offers another unique benefit: it protects income from social security. The income derived from the built-up monetary value within life insurance policies isn't factored into the calculation for social security tax.
How Cash Value Life Insurance Works
Now that you understand some of the benefits, let's look at how cash value life insurance actually works.
Guaranteed Growth
Unlike market-based investments, life insurance policies with an accumulation element offer assured increase in value. Your policy's cash value is guaranteed to grow, regardless of the insurance company's capacity to pay out dividends.
Thompson provides a compelling example: A study of policies from a prominent life insurance company from 1980 to 2013 showed yields of 5.65%, 6.02%, and 6.22%. These returns often exceed what many investors have achieved in the stock market recently.
Easy Access to Cash Reserves
One of the great features of cash value life insurance is the flexibility it offers. There are no federal limits on contribution amounts, allowing you to contribute variable amounts based on what the insurer will approve.
You can access the accumulated funds by using your policy as collateral for a loan. This often leads to reduced costs due to the lower inherent cost of capital for the policy. Loans are often preferred as they allow your invested capital to keep growing, maintain the full life insurance payout, and avoid taxes as long as the borrowed sum remains within the limits of your initial investment.
Building Wealth Through the Death Benefit
The death benefit isn't just about financial protection; it's a powerful tool for creating an enduring legacy. As your policy's cash value grows, so does the death benefit, increasing the monetary legacy for your beneficiaries.
Creating Your Cash Value Life Insurance Plan
If you're convinced of the benefits of cash value life insurance, here's how you can start developing your own plan:
- Find a reliable and skilled insurance representative who can craft a strategy tailored to your individual needs.
- Choose a mutual insurance company with a strong rating (at least A or above). Thompson recommends companies like MassMutual, Guardian, New York Life, and Northwestern Mutual.
- Consider your investment strategy. You can make regular investments, invest an initial sum followed by regular contributions, or make a lump sum investment.
- Integrate your life insurance policy into your comprehensive financial plan. You can leverage policy loans to improve other investments, making it a flexible economic instrument useful in planning for both business and retirement.
By following Thompson's insights, you can harness the power of cash value life insurance to build and protect your wealth, just like many successful individuals and corporations have done for decades.