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How Wealthy People Use Life Insurance To Build and Keep Their Net Worth.

Take action: a Tax-free Tool Can Improve Your Retirement Funds

By Fred Costa Published 3 years ago 3 min read
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How Wealthy People Use Life Insurance To Build and Keep Their Net Worth.
Photo by Laurel and Michael Evans on Unsplash

During my four years as a licensed life and health insurance agent, I was considered one of the best new agents at the company I worked. My numbers made me travel to seminars in Dallas, TX, and Las Vegas, NE, staying in luxury hotels paid by the company. The good numbers come from a different approach I used to the prospects, asking them to talk about retirement, not death benefits. Life insurance is about your life at the end of the line, not death, and it's a valuable tool with many benefits for your finance.

Do Wealthy People Need Life Insurance?

In their case, life insurance may is needed if anyone depends on their income. It's also much used if their beneficiaries will need to pay an estate tax on it.

Wealthy families and individuals understood it already, and they see in a life insurance policy a strategy to build wealth, save in taxes, and keep their assets. How they do it?

1. They avoid taxes accumulating money in the life insurance policy.

Permanent life insurance allows them to accumulate money that they can use in life without paying taxes. This type of policy is usually offered by mutual companies, which don't share stocks in the market but share the annual dividends with clients owned this type of insurance.

There is a long period to reach break-even, and after this point, the insured will have more money inside the policy than he did put there. You may ask me, what's the catch? There are rules, not catch. It can be tax-free money to be used by the insured in life. Death benefits are also tax-free in the United States.

2.They pay inheritance taxes with the money from life insurance, avoiding selling the family assets for it.

Simple as it is. When someone in your family dies and leaves a house for a family member, its person will have to pay taxes on its inheritance, and it's not rare to see them selling the home because of the struggle to pay estate taxes.

How does net worth affect life insurance?

It impacts how much life insurance coverage you can buy, as well as your health. Healthier individuals with higher income or net worth have more chances to get approved for more coverage. Also, healthier people can pay less for the same amount of insurance compared to fewer healthy individuals.

What is the best life insurance for wealthy people?

There are two good answers for it.

1. The best Life Insurance is the one you have valid at the moment of your death. Some people have hard times finding the best service for them, but whatever wealth or not, it's better to have something when you die than have nothing.

2. The best life insurance depends on your needs. High net worth people would consider work with larger insurance companies that offer better and higher death benefits. The big insurance companies also usually present better ratings about their financial health.

Retirement

Wealthy or not, taking now decisions about the topics presented here will impact your retirement funds when you need them. If you don't use the cash value you built for years on the life insurance, it'll be very welcome as a complement for your retirement as free-tax money. As you may know, diversification is crucial because it reduces your risk. If the market is going bad, affecting your 401(K) negatively, you'll have other alternatives where your money will be safe.

Of course, different people have different needs, but you can, for example, transfer your life insurance cash value to an annuity and have a monthly income till your last days. Besides, you have your 401(k), or IRA plans yet, and all this can allows you have great times in your retirement.

personal finance
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About the Creator

Fred Costa

Fred Costa is a Brazilian journalist and author living in Philadelphia, USA, since 2013. He has been writing for newspapers, blogs, and advertisement campaigns and was a local news anchor in his hometown in Brazil years ago.

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