Blog - The Elephant in The Room of Your Finances
Let’s talk about what everyone else doesn't want to talk about. It can be big. It can also be comforting, but boy can it be eerie. It’s been around for decades and decades and often times follows you for over 75% of your life (without you ever even catching a glimpse of it). Many of your friends have it and for most it appears to be nothing but a number over their heads. For the last century or so it seems like it is just THERE. It is just one gigantic, awkward elephant in the room.
Why is it perceived like this? That I cannot answer (though I wish I could). However, I can tell you how to quit eyeing the elephant and embrace it to change your life for what could be the better.
What is the elephant that I am referring to? It is merely a simple, two-worded financial resource that has been around for centuries; a death benefit. There, I said it! You can finally let out that long awaited breath of relief that has been occupying the space in your lungs.
It’s no secret; for some people the term death benefit can sometimes be like the gigantic, awkward elephant in the room. With only these two words a crowd can go from high-fiving to a sharp, tight cringe. I too don’t necessarily want to envision the time when my Father takes me from this life (that is only rented, might I add) to be with Him.
However, 95% of the time that I speak of a death benefit I am referring to how it can be used TODAY. Did you know that a death benefit directly relates with the cash value of your life insurance policy? That’s right, not only does a DB allow you the opportunity to get to where you need to be financially today, but also help others tomorrow. Consider these as living benefits.
Do you understand how to harness the power of a DB to work for you and your family as living benefits today, or will you continue to stare at it like an elephant in your room? Let’s cover the top 2 ways to utilize your death benefit as living benefits.
1.) EBRACE THE DEATH BENEFIT! GROW IT!
Once opening a whole life insurance policy, there are only 2 ways to grow the death benefit (without being resubmitted into underwriting & answering all of those pesky health questions again). The first of the 2 is what is known in the insurance industry as a Paid-Up Rider (PUR). In simpler terms, this allows the policyholder or payer to add a pre-determined amount of cash into the policy. This cash is reflected in the premium. Depending on the contract, well over 90% of this PUR cash can be accessed in the form of a loan. Keep in mind that the PUR rider will need to be apart of the policy from the beginning.
The second way is by electing your policy dividends to purchase additional insurance. This is called Paid-Up Additions (PUA). By utilizing the dividends in this way you are directly purchasing more death benefit within the policy, thus growing the DB. (Keep in mind that this is only 1 of 5 ways to use policy dividends. Learn details of the other 4 here).
Now that you know how to grow your death benefit,
How does raising my death benefit of a whole life insurance policy achieve living benefits?
Great question! To answer this you must know the most basic principle of a whole life insurance policy.
As a policyholder, the insurance company guarantee’s you that the cash value of your policy WILL equal the death benefit at a given age.
Because we American’s are living longer most company’s “given age” is 121. This means that the Cash Value (the amount in which you can access in the form of a loan) MUST equal that elephant of a death benefit in the future.
By raising the death benefit, you in turn have access to more cash via a loan. So, if you could raise the death benefit, would you want to? Of course! That leads us into the next way to use the death benefit to your advantage as a living benefit.
2.) POLICY LOANS TO YOU, FROM THE INSURANCE COMPANY.
Many people own a life insurance policy and all of these policies include a death benefit. However, most do not know that they can utilize their policies TODAY in the form of a loan. Insurance policy loan provisions differ from contract to contract and it is important that you learn these and discuss the options with a Certified Infinite Banking Practitioner before taking a loan.
When you take a loan against your policy the insurance company uses the money within your cash value as collateral against the loan. Therefore, your cash value continues to grow at the predetermined, contractual guaranteed rate. In turn, you capture the opportunity cost of spending cash and also harness the power of compounding interest.
How does taking a loan directly correlate with the death benefit of my policy?
Another great question! Many people think that the insurance company forces you to repay the loan out of pocket upon the death of the insured. This is not true! If there is any outstanding loan upon the death of the insured, the insurance company simply deducts that amount (plus any interest owed) from the death benefit. This is why some people refer to loans as a “pre-paid” death benefit (though technically that is not at all what a loan against your cash value is). To learn the detailed version of this process, read Dr. Robert P. Murphy’s blog, “Do Life Insurers Keep Cash Values After Death?”