You have heard it time and time again to only buy Term Life insurance and invest the rest. It has been a philosophy for decades. It is as if the Whole Life Insurance product is a total rip off when in fact it is the soul mate to your money causing tax free distributions. Now, not every whole life product is outstanding, but if it’s mutual and participating, it’s on the right track…….
There are many who do not understand insurance in totality, but have a better grasp on the Real Estate market. So, let’s move forward into the breakdown of Term, Whole in comparison to Real Estate.
Term Life Insurance = Renting | Whole Life Insurance = Ownership
In real estate you can sign a lease to rent a home, in which your cost is locked in for the duration of the lease. Well, in life insurance this process is called “Term Life Insurance”. The only difference is that the term agreement is longer than a real estate lease. You may rent “Term Life Insurance for 10, 15, 20, or 30 years in many cases.
Like renting your home:
- There is no equity.
- The monthly outlay is lower than owning because you do not have to pay taxes on the property, insurance or the cost of maintaining the property.
So “Term Life Insurance” is exactly the same way. Once your rental lease is over and you decide to stay, the rate will increase. The landlord will do a mandatory check in-or check up on your credit score…..
In Term Life Insurance- it’s called a health check up. Let’s look at a premium based upon your age. We all get older!! Now, there are some question’s I ask from time to time in explaining insurance:
- Do you own a home? Why don’t you rent? In many cases, clients or potentials do own a home and they do not rent because there is no equity or appreciation in the property at the end of day.
Many real estate agents will see this as a waste of money. I agree to an extent. Who wants to give all their money away? I know your wheels are turning right now, but I am not done. We have another product to discuss.
So what about Whole Life Insurance? Remember, this product represents ownership. It’s just like owning real estate property rather than renting it and receiving the benefits of ownership.
- You pay a premium just as you would pay a mortgage, the insurance, and the property takes.
- As long as you pay the premiums of the Whole Life insurance policy, you have a guaranteed contractual death benefit until you take your last breath. So as with a paying a mortgage note and taxes, you own the home until you decided to sell and move out.
- Your whole life insurance will build a cash value tax-deferred fund inside of the ownership and as it grows overtime they will exceed the sum of your contributions. Well, just like in owning a home, you will build tax-deferred equity by paying down the mortgage and your property value(equity) increases.
Have you ever leveraged home equity or have you borrowed money using property as collateral? If so, the value of the property continues to grow at the same pace even though the equity has decreased. In addition, you pay the financial institution an interest rate for the advantage of the leverage so it does not tamper with the appraisal value which could count as debt.
In whole life insurance, this is called a non-direct recognition life insurance policy. It works the same way. You borrow cash at an interest rate that is paid to the company. You are not keeping the interest. This allows you to keep compounding the growth of your cash value not based on the cash value that is remaining, but the pre-loan value. SO SWEET!
So the best whole life insurance product to have is with a mutual, participating company with non-direct recognition value. I hope this has given you a better understanding of this sweet industry and why so many individuals have both Term Life Insurance and Whole Life Insurance in their portfolios.