How Life Insurance Can Help You Build Wealth | Farm Bureau Insurance (2024)

FAQs

How Life Insurance Can Help You Build Wealth | Farm Bureau Insurance? ›

Life insurance policies, such as Farm Bureau Insurance's whole life policy, often come with a cash value component. As you pay your premiums, a portion of them goes towards building a cash value within your policy. Over time, this cash value can grow on a tax-deferred basis, and this allows you to accumulate wealth.

People primarily use life insurance to build wealth for the next generation, so that a family doesn't suddenly find themselves penniless. Often, beneficiaries will use a life insurance payout to pay off a mortgage, fund college educations and pay bills until jobs or careers can be established.

If you're considering how to use life insurance to build wealth, then you can start by looking for a policy with a cash value component. For cash value accounts, the insurer takes part of your insurance premium and puts it into an account intended to increase in value over time.

Life insurance can provide more than just a cash payout to surviving family members. When used strategically, it can also be a powerful legacy planning tool. The right policy can offer a financial safety net for your family—and a way to grow your wealth during your lifetime.

How can you use life insurance to build wealth? Term life insurance can be used to build wealth across generations by providing a payout to your surviving loved ones. The death benefit can be used to pay estate tax, as well as preserve remaining assets.

Upon the insured's death, the death benefit paid to beneficiaries is not income taxable. Therefore, the potential rate of return on the premiums you pay can be competitive compared to taxable investments, potentially ensuring more money for the people you love and the things you care about.

To make the infinite banking concept work for you, simply request a loan from your life insurance policy. This is accomplished by submitting a policy loan request form. Once they verify the funds available in your life insurance cash value, the insurance company sends you a check or processes it electronically.

Can you use your life insurance to pay off debt? ›

Yes, it can be done. If you have the right type of life insurance – whole life or universal life – and have been making on-time payments to it for an extended period, you may have accrued enough “cash value” in the policy to bury your credit card debt.

The right life insurance policy can build cash value

The cash value growth of IULs is based on the market, and IULs "can give the member the option of gaining up to 8% interest," Graham says. And, there are other cash value options, like whole life or permanent life insurance policies, as well.

The basics of wealth building

It's really common sense, but budgeting, maintaining a consistent savings habit, avoiding or paying off debt, stashing money away in an emergency fund and spending less than you make are all pillars of building wealth.

Life insurance is a great wealth transfer asset because the proceeds are inherited estate and income tax free, and can be used for goals like providing liquidity to pay for estate taxes, or transferring wealth directly to your beneficiary(ies).

By putting up your life insurance, you could improve your chances of qualifying for a mortgage and at a lower interest rate. If your life insurance policy has cash value, you could take that money out through a loan or withdrawal and put it toward your home purchase.

You and the bank pay for an indexed universal life policy. You pay 25% of the total premiums, and the bank pays 75%. After 15 years, the cash value builds up enough to repay the bank for its contribution and interest. Then, you have a paid-up life insurance policy to use however you want.

Term life insurance can help your family build generational wealth if you pass away during the contract term. Term provides the most death benefit per dollar of premiums and is a great tool for clients who need to save for additional financial goals.

Generational wealth can provide long-term financial security and open up opportunities for your children and beyond. Strategies for building generational wealth include investing in education, financial markets, and real estate, and creating and preserving assets.