6 Benefits of Whole Life Insurance (Infinite Banking) - YouTube

The benefits of a whole life insurance contract

Listen, they're loaded with guarantees primary guarantees and secondary guarantees

You put money into the policy in the form of a premium and the issuing

Insurance company guarantees the cash values and the future death benefit. The guarantee is backed up by their claims paying ability

Well, there are also secondary guarantees

They're provided by the states the individual states through the state guarantee associations

Control it's a private contract. All right, you own it

you control it. Now think about that. Sometimes, not always, but sometimes

Control is better than ownership

Right, if I can control an asset or own an asset, which is better. Well, it depends on the situation

Sometimes control is as good as or better than ownership

But with a life insurance contract with a whole life insurance contract the owner has control of that policy

guaranteed by contract dividend-paying whole life or whole life insurance has a

guaranteed cash value the cash value is made up of two parts guaranteed interest and

non guaranteed dividends

So the interest is guaranteed no matter what the cash value earns interest every day forever

Compounding 24 hours a day 7 days a week

365 days a year

Year over year, even on weekends.

Think about that earning interest every day

And then the non guaranteed component of the cash value is the dividend. Well, we've kind of got to consider. What a dividend is

Well, the dividend is the experience of the company

So if the company has a profitable year they experience

You know good profits for the year or they experience profitable year then they pay a dividend to the policyholders

If it's a mutual company

Now the dividend is classified as a return of premium under the Internal Revenue Code. So therefore it's not taxable

Well, perfect. I don't care what they classify it is. Just pay me a dividend

Okay, and then you look at the cash value

What is the cash value of life insurance? The cash value?

literally is the net present

value of a future death benefit

minus the future premiums

Right. It's very simple you

Pay a premium

part of that premium accumulates internally

and it and accumulates as a cash value. The cash value grows at guaranteed interest rates and

dividends that are not guaranteed

But that is an accumulating

value. The cash value is accumulated forever. So if you if you consider to

What is the company doing whenever you pay the premium? You know they've got to put a portion of that premium,

I mean, there's expenses no question to creating a life insurance policy.

Distributing that product and we all know that the consumer pays for everything right? There's nothing new about that

but look part of your premium goes to cash value that cash value

The Company has to put to work to meet future obligations

Which is the death benefit your death benefit in the future cash values. So the companies

They have to be very conservative. They put that money to work in guaranteed interest rates and guaranteed payback schedules

But you as the owner have

control of that cash value as it relates to your policy

Why? Because contractually you have the right to access that cash value and you can do that through withdrawals or loans

or collateralization. Right now think about that. I can get mad and quit and withdraw my cash value. It would collapse the policy. It doesn't exist any longer

But I've got my money out of it.

or I can by contract

collateralize that cash value. So, if I do that, if I borrow from the insurance company

collateralizing my cash value, that cash value is still earning interest and dividends forever.

I'm not interrupting that compounding because it's a contract. Alright, the life insurance is a contract

There's a lot of things you can do with that cash value.

You can take the cash value and make it pay its future premiums.

Yeah, it's called premium offset or paid from policy values. I don't want to use a bunch of you know industry jargon

but I have control over that policy. All right, so I can use the cash value

Through withdrawals or loans and I can use it to do anything I want.

If I didn't want to pay a future premium, I could make that cash value pay its future premium.

It's just premium offset or pay from policy values I can start and stop that.

The tax treatment of cash value is

literally and technically and legally tax deferred. If I put money into the policy

it starts accumulating a cash value. That cash value is going to accumulate tax deferred,

but I can also access it tax-free, right? So if I if I let it accumulate

Compound and grow and build, I can withdraw it.

Withdrawals from a life insurance policy are

tax-free up to my basis. My basis is just what I paid into it.

Then, if I withdraw above my basis

I'm taxed at ordinary income on those withdrawals or I could switch to loans.

I could withdraw the basis and then switch to loans, loans are not taxable.

So the cash values accumulating tax deferred but accessible tax-free and the death benefit, of course as always

the death benefit is typically tax-free.

There are some circumstances with the structures of a policy that the death benefit could be taxed and we'll talk about that in a minute.

If you look at the cash value

Accumulation, it really comes from two components. One component

is a guaranteed cash value that earns interest every day forever

while that policy is in existence. And then dividends are paid from the company generally on an annual basis and

the dividend is not taxable.

It's classified as a return of premium under the Internal Revenue Code

And I don't care what they classified as long as I earn a dividend

You know

that's what I want. I want to earn the dividend and I want to earn the interest and

then if we look at the dividend, me the owner of the policy, I have several options

that I can exercise when it comes to that dividend. I can take the dividend in cash, right?

I can leave the dividend to earn interest at the company.

I can take the dividend and reduce premiums. I can take the dividend and reduce an outstanding loan balance.

I can buy, you know, term insurance with that dividend internally

Or I can apply it right back into that policy

straight into the paid up additions rider and then just enhance the compounding

accumulating effect of that cash value.

That's really what you want to do once you understand how a life insurance policy, structured for cash, works.

You know and let's look at that. Let's consider this on the dividend, right. Even though a dividend is not guaranteed

once the dividend is earned, the value of that dividend cannot go down. That's very important.

Let's consider a dividend from a stock. Let's say I bought a stock from XYZ company. Well, I could take the dividend in cash

or I could put it into a D.R.I.P., right? A direct reinvestment program.

So if I got paid the dividend and I'm in a drip program

I'm gonna buy a fractional share of that stock

Okay. Well, what's the future value

of that stock gonna be? I don't know and you don't know either right? Even the company might not know. Of course they don't know.

So, if I bought a fractional share of stock with the dividend that

stock value can go up or down. So you could lose value, right?

And it's directly related to the dividend. The dividend I got

paid the dividend. I bought a fractional share of the stock.

The stock value went down, didn't the value of my dividend decrease? Yes. Is that always going to happen?

No, but it cannot happen in a life insurance policy.

Once the dividend is earned and paid I don't care where you put it. Right? If you put it into the paid up additions

rider of the policy it cannot go down and value that's pretty powerful.

The tax benefits of life insurance

If you look at that. The cash value accumulates tax deferred. It's accessible tax-free. The death benefit is tax-free

Now that's if it's structured correctly and the premium is paid with after-tax dollars.

You know, I hear an awful lot of the times. Well, can I get a deduction to pay the life insurance premium?

Well, why in the world would you want to do that?

If you get a deduction to pay the premium, then the benefits are gonna be taxable later, right?

That's exactly what you want to avoid. Pay taxes on your money one time and move on.

So the tax treatment of cash value is tax deferred and then the cash value though is accessible

tax-free. Then the death benefit is

tax-free as well.

So if you look at and consider the power of the death benefit, the death benefit

can give the owner permission

to spend the cash value.

Or other assets, and/or other assets. Think about that.

You have an IRA or 401k with a million dollars. You saved it up for your retirement. You got a tax deduction..

to put the money in, but now you've got to pay taxes as the money comes out.

Well, once you spend that million dollars what happens it's gone?

Well if I had a million dollars in cash value I can spend that cash value and still leave a

remaining death benefit.

So if I have life insurance

maybe I didn't die early. Right? I didn't die prematurely I

lived a full long happy life. That death benefit can give the owner permission

to spend assets so they don't have to go through that decision-making process

Well, should I go with less today so I can leave something for my children or my grandchildren? No.

You give it away to your grandchildren. Enjoy it while you're alive and leave a death benefit.

It should give the owner or can give the owner permission

to spend assets they might not otherwise would have spent.

That's freedom

Then if we consider another benefit of life insurance.

whole life insurance.

There are some contractual guarantees that

exist in whole life insurance that do not exist in other life insurance types. Okay?

There's what is called a non forfeiture option or non forfeiture options.

One of them is the contractual right to take a reduced paid up policy

That does not exist in any other form of life insurance. So I have a cash value

I can exchange that cash value for a paid up life insurance policy with a reduced death benefit and still have some cash value.

That's very powerful. I can take extended term and there are some other options.

My point is there are some guaranteed

abilities and options with whole life insurance that does not exist with the universal life, term life, etc...

And then of course, there are

other benefits, through riders, that you can use pay for and enjoy.

Long term care riders, waiver premium riders,

other insured riders. There's other benefits that you can attach to

a whole life insurance policy. Long-term care riders. Those are worth investigating on their own.

In summary, you know whole life insurance is a contract.

Contract is the basis of our society and it's a unilateral contract.

Ein Bahn Strasse (One Way Street), right? The company can't change anything about that contract. Me, the owner

I can change some things very

limited on what I can change, but it's a private asset so I can change ownerships, I can change beneficiaries.

But I'm limited on what I can change. Yhe insurance company can't change anything. And then cash values.

Guaranteed cash values. There are primary guarantees and secondary guarantees.

Primary guarantees are given by and backed up by the claims paying ability of the company.

So the guarantees are provided by the insurance company who issues the polic.y

And it's backed up by their claims paying ability.

They're assets, the secondary guarantee is provided by the state guarantee associations

pretty powerful primary guarantees secondary guarantees, and then I have the opportunity to earn a dividend a

Tax-free dividend that I can use to accelerate the power of my policy.

That's worth looking at then the tax treatment of life insurance

If I pay the premium with after-tax dollars

which is

What should happen. which is what you should do.

Right? the money the cash value

Inside the policy grows tax-deferred. It's accessible tax-free. The death benefit is tax-free

Then I have the guaranteed non forfeiture options. I have guaranteed

rights and abilities in that contract that does not exist in other companies. Then of course you can add other

additional benefits to that through riders that have cost.

but the the value that you can add to

policies with these riders is well worth the cost.