The phrase “cash is king” is so true, especially for negotiable transactions such as purchasing a vehicle, a home, gold or any other type of investment. Having cash in hand is power, but there is something that can be even more valuable than cash. And that is the cash value in a permanent life insurance policy.
Many find they need the protection that life insurance offers in situations, such as preserving the lifestyle of a surviving spouse and children, to insure the smooth transfer of closely held business interests, to use as a funding source to pay estate taxes, or to transfer wealth to the next generation. Once the need for a death benefit has been established, there is the added benefit of paying additional premium in order to build the cash value.
There are many reasons why this type of life insurance policy may be the right place for your clients to grow their hard-earned money while having access to it throughout their lives.
Why is “cash value” better than “cash?”
One of my clients, a young dentist, was asked what he would do if he had $500,000 in cash. His immediate thought was to pay off his student loans and then put the rest down on a new home. Why would he want to give up having that nice cash cushion only to be back to where he had been five minutes earlier with no liquidity? How was he planning to build his dental practice, purchase equipment and pay for his staff?
Cash is great, but once spent, it may be gone forever. And if left sitting in a savings account waiting for an opportunity, it is earning little interest and ultimately losing value to inflation each year. Additionally, interest made on that money is taxable, which further erodes the value of your cash.
On the other hand, if a client’s after-tax dollars were gradually taken from a savings account and used to purchase a whole life insurance policy, the credited cash values can grow tax-deferred throughout his or her life. It can also be just as accessible as leverage in a negotiable situation. If the right product is chosen, the cash value can grow uninterrupted as collateral while they are borrowing the money from the insurance company to use for the purchase of the investment.
The cash value is also there for life events that happen where your clients need access to cash. It is always there ready to use for college tuition, wedding expenses, a down payment on a home, medical expenses and, ultimately, to fund retirement years.