Cash Value Life Insurance Has Been Given A Bad Rap In Recent Years By Financial Pundits Like Dave Ramsey and Suze Orman…
These financial entertainers would have you buy term and invest the difference. But what if you use life insurance as something other than death insurance?
What if you could fund a permanent cash value life insurance policy that can take on multiple roles, such as a retirement plan, disability insurance, long term care insurance, and personal finance company?
What if you discovered that life insurance may be the most important asset you own?
An Introduction to Cash Value Life Insurance
Before we blow your mind with the amazing benefits connected to cash value life insurance, let’s start with a brief introduction on what cash value life insurance is.
Cash value life insurance is a permanent life insurance policy that provides a death benefit that also has an account that accumulates cash value. A policy is a contract between you and the insurer where the insurer agrees to pay a death benefit to your beneficiary upon your payment of premiums. A portion of your premium goes into a cash account. The cash account grows in value over time and can be used for life insurance loans and policy withdrawals.
For purposes of this article, our main focus will be on participating whole life insurance vs term life insurance.
Other types of permanent life insurance, such as Indexed Universal Life and Variable Universal Life, offer cash accumulation. Term life insurance does not build cash value, although some term policies with ROP riders offer small cash accumulation.
Top 5 Best Cash Value Life Insurance Companies and Policies
The following companies currently rank as our picks for the top cash value companies. If you have any questions about any of the companies and policies listed below please leave us a comment or give us a call. We are happy to run any illustrations you require.
1. North American Company for Life and Health
North American’s Rapid Builder Indexed Universal Life insurance offers high cash value life insurance accumulation. The company offers daily crediting so that premiums paid into the policy are credited to the indexing account the next business day after they are received. The name “Rapid Builder” refers to the policies rapid cash value build due in large part to 0% premium loads.
For more, go to our North American Company review.
2. Penn Mutual
Penn Mutual’s Indexed Universal Life policy offers a cash value enhancement rider to supercharge your cash value growth. With an additional No Lapse Guarantee, you can rest assured that your policy will not lapse even if the cash surrender value drops below zero.
Penn Mutual also offers one of the top whole life insurance policies in the marketplace. With flexible paid up additions options and requirements, Penn Mutual’s whole life policy should be considered for anyone looking for the best cash value whole life insurance.
For more on this great company, please visit our Penn Mutual review.
Whole life insurance and MassMutual are synonymous. Particularly, the companies 10 Pay Whole Life policy offers exceptional cash value growth with the benefit of a limited pay policy. The benefit being that you pay into the policy for 10 years and no longer need to make premium payments, but your policy cash value and death benefit continue to grow.
For more, please visit our MassMutual review.
4. Foresters Financial
Although probably the least well known on our list of the best cash value life insurance companies, the company’s 20 pay whole life insurance offers some of the most advantageous cash value growth in the marketplace. In addition, you can qualify for up to a $400,000 no medical exam whole life insurance policy thanks to Foresters unique underwriting.
For more on this fantastic carrier, please check out our Foresters Financial review.
5. New York Life
Another company whose name and whole life insurance go hand in hand is New York Life. As the nation’s largest mutual insurance company, New York Life has wowed policyholders year in and year out with its fantastic cash value growth due to a solid history of dividend payments. With a perfect Comdex rating of 100, the company enjoys many accolades in the industry as one of the top rated carriers. New York Life whole life insurance should always be considered when looking for the best cash value policy in the marketplace.
For more, please stop by our New York Life whole life insurance review.
So there you have it,
our top 5 best cash value companies and policies.
Now you may still have questions on why anyone would want cash value life insurance. Please keep reading to discover the various benefits of this misunderstood financial gem.
Top 5 Best High Cash Value Life Insurance Pros
- Contractual Rate of Return
- Lasts Your Entire Life
- Tax Free Accumulation
- Wealth Storehouse
- Recapture Interest
Cash value life insurance offers a contractual rate of return as well as likely dividends and additional growth that is not dependent upon the financial markets.
This first point applies to traditional whole life insurance and not to alternatives, such as variable universal life, which may be tied to the stock market.
Traditional whole life insurance offers a contractually guaranteed rate of return based upon the cash value deposited.
Whole life policies also offer non-guaranteed “up side” that essentially improves upon the guaranteed portion through the payment of dividends. While the dividends are not “guaranteed” most of the established companies have paid dividends consistently for the last 100 years regardless of the markets or other financial circumstances.
Depending upon the policy projections, the rate of guaranteed growth is usually around 4% in today’s interest climate and this policy growth may be increased further by utilizing some of the strategies discussed below.
Actually, the growth potential of a whole life policy increases if certain “infinite banking strategies” are utilized within the policy. Through such strategies, such as the use of paid up additions, the growth potential of the whole life policy increases exponentially and dramatically.
Cash value life insurance lasts for life as long as you pay premiums and it may get less expensive as you get older and the policy matures.
The pundits like Dave Ramsey and Suze Orman tout the strategy “buy term and invest the difference”. Essentially, they are advocating that everyone purchase term life insurance, because it costs less than whole life insurance, and then investing the difference in whatever hot mutual fund or other investment…that they happen to recommend of course.
Without diving too much into a repudiation of this common objection, suffice to say that this blanket advice tends to miss a few critically important details.
First, term life insurance gets more expensive as one ages AND whole life insurance gets cheaper.
So, consider which is a better retirement plan…to defer your life insurance and pay exorbitant premiums later, or pay more when you’re younger and enjoy fully paid up life insurance protection as a retiree?
Term Policies Don’t Pay Out
In fact, the insurance companies know that most term life policies never pay a death benefit because the policy expires before the person dies. 98% of term life insurance policies expire.
So essentially, the insurance company spent little to provide the death benefit. On the other hand, whole life policies ALWAYS pay a death benefit if kept in force and therefore they are more expensive at first.
Dave Ramsey attempts to handle this by recommending that you invest the difference when you’re young so you can self insure. I would suggest that this is dangerous advice to say the least.
The historic returns of the stock market have not been shown to outpace the steady 4% guaranteed return of a whole life policy, further benefited from potential dividend payments ranging from 2-3.5% and up depending on the interest rate environment. That is a total potential return of 7% annually income tax free!
In contrast, assets such as IRAs and 401k plans stand to be depleted by taxes even if the market delivers an “uncharacteristic” consistent return.
Prudent estate planning dictates that as we age, the welfare of our loved ones gets more important AND our expenses for health care and insurance tend to increase.
So, a front end loaded whole life policy with a permanent growing death benefit is inherently wise and effective for providing peace of mind and loved ones with needed resources.
Cash value life insurance accumulates cash value with after tax dollars, much like a Roth IRA, but offers total flexibility for cash withdrawals and policy loans.
The IRC section on cash value life insurance breaks down the tax incentives of this type of asset. Basically, cash value grows income tax deferred. If you withdraw from the policy, all premiums paid up to your basis can be withdrawn tax free. Further, life insurance loans are tax free. Now compare this with a Roth IRA.
Most people have been privy to the financial community’s raving about the Roth IRA in recent years. For those of you who haven’t heard, the pitch is for the Roth IRA is to ask whether a person believes that taxes will be lower now or in the future.
A common answer upon reflection is…higher in the future. Put another way, I pose the same question concerning whole life insurance by asking…is your dollar worth more now or in the future?
Both the question of taxes and the value of your dollar are important when considering either a Roth IRA or a whole life insurance policy because they are both funded with after tax dollars.
To answer the question, I suggest that the dollar in your hand right now is more valuable than that future dollar for a couple of reasons.
First, inflation dictates that your dollar will be less in the future. If you think inflation doesn’t apply because it hasn’t been talked about recently and the Fed hasn’t raised rates, think again. Inflation is the reason that you’ll pay more for food, clothing, or a new car today than 10 years ago.
Another reason that your dollar is worth more right now is the likelihood of increasing taxes. Simply put, if you have 1 million dollars in an IRA, that isn’t really what you have…depending upon your tax bracket, you can deduct 25%-35% or more from that number.
Nelson Nash, the originator of the infinite banking concept, posed the question whether you would rather pay tax on the harvest or the seed?
Right answer = the seed and not the bumper crop.
So, if you’re noticing that I’m analyzing the Roth IRA and whole life insurance together, you’re correct and I’m doing so because a whole life insurance policy operates like a Roth IRA but with greater flexibility as well as a death benefit.
Whereas whole life policies offer total flexibility for withdrawing cash from the cash value AND taking policy loans, there are actually a series of restrictions for Roth IRA withdrawals, and 401K loans and withdrawal rules are even worse!
Another consideration is the fact that the Roth IRA is reliant upon the roller coaster of success and failure that is the financial markets. Cash value life insurance is simply a safer investment because it offers a contractual return as discussed in #1 above.
Cash value life insurance is an extremely safe investment that can be utilized as needed to fund higher risk/return investments.
There is a reason, as discussed in our previous post on Whole Life Insurance that the largest banks and financial institutions invest billions of dollars in bank owned life insurance (BOLI) and corporate owned life insurance (COLI).
These are AA and AAA rated companies that have not only weathered the most tumultuous of markets but have even continued to pay dividends through these turbulent periods.
As discussed, most financial advisors who recommend a “bucket system” for “saving”, “investing”, “emergencies”…would also agree that the savings bucket should be a safe place for funds that one cannot afford to lose.
Thus, it is not appropriate to place savings in the markets for obvious reasons. Yet, isn’t the financial community striving to convince you to do just that?
Of course, you can leave your savings in the bank and earn less than 1% interest.
Herein lies the inconsistency in Dave Ramsey’s recommendation because although he advocates an “emergency fund” he fails to see the utility of using a cash value life insurance policy for this very purpose, despite that fact that life insurance is “asset protected” in many states.
Cash value life insurance can be strategically used to maximize the cash value and tax savings while recapturing debts for financing other necessary items such as vehicles or business expenditures.
Most of the insurance agencies and their agents today do not understand that “infinite banking” possibilities that are made available through using whole life insurance policies.
This idea was coined by Nelson Nash and discussed in detail in his book “Becoming Your Own Banker”.
The basic idea behind this infinite banking concept is that a policy holder can design a whole life policy to accrue cash value more quickly for the purpose of setting up a unique vehicle for personal family financing.
This strategy is highly favorable to utilizing a bank because it allows the individual to recapture all interest and expenses that are being paid to third parties, resulting in ever increasing high cash value life insurance.
Ask yourself this…
A question to consider that is absolutely critical is how much of your current payments for your house, car and other debt laden assets is being applied to the principal? It isn’t the rate of interest but actually the volume of interest that is important.
What that means is…
When you structure a whole life policy to recapture this debt and then commit to paying back the debt (at least the interest) it is possible to put your policy gains (and death benefit gains) on steroids.
Moreover the flexibility of cash value life insurance allows you to access the funds for other investments when opportunities are made available, such as during market crashes and bubbles popping.
If you’re a real estate investor, the cash value of your policy can be accessed for real estate investments and the return on investment can be exponential because you’re making a return on the funds already in your policy…(“it’s your money”) as well as the return on your real estate investment.
If you’re a business owner, and are leasing equipment or facilities, there are strategies to recapture your borrowing costs and the results in policy growth can be dramatic.
The infinite banking strategy all begins with a properly structured policy and a commitment to treating your policy like any other business venture. Yes, the cash value in the policy takes some time to accrue in the same way that any other business requires start up capital to get going…
…But when the policy is funded, the magic begins. And funding a policy can be done in months, not years, when properly structured!
So there you have it…5 Mind Blowing Reasons to ignore the naysayers and learn more about the power of utilizing cash value life insurance for wealth building, financial security and legacy planning.
I am confident that the more you learn, the more you’ll agree that this tool is truly “Mind Blowing”.
For a more detailed idea on how cash grows please request an illustration which will calculate cash value accumulation.
Thank you for reading our article on the benefits of Cash Value Life Insurance. We would love to hear from you.