Why The Wealthy Buy Whole Life Insurance

whole life policyThere is a renaissance going on with life insurance in America. It’s coming from individuals with financial wealth who seek to protect their money from the Government and look to diversify from the volatility and uncertainty of Wall Street. They are doing it with dividend paying permanent whole life insurance.  It’s the kind of life insurance Americans from the greatest generation knew something about.

Whole life insurance has existed since before the creation of the income tax code. In 1913 upon the creation of income taxes, the government granted a tax exclusion on the death benefits and cash value growth inside the policies. Today, the power of this cash value build up comes from the compounding of dividends paid by insurance companies to their policyholders. Many of these companies have consistently paid such dividends without failure for 100 years or more including the great depression and the Financial Crisis and stock market crash of 2009.

A Legal Contract For Money

Insurance companies exchange money for a contract. Think about Wall Street and the banks. Do they have a contract? When the bombs fall on the financial markets what protects your money? Insurance companies provide guarantees in writing with a legal contract.

Need A Loan?

Did you know insurance companies make loans? It’s true and they have been doing it for over 100 years. While money is compounding inside a whole life policy, the insurance company will let you borrow from (aka collateralize) your policy and make you a loan. They do this without any financial application. You just ask for the loan. This has proven over and over again to be a useful financial function for those with all their money tied up in 401k and IRA plans. Speaking of which, that’s another reason why whole life insurance is being rediscovered.

IRS Section 7702

Have you heard anyone say that taxes are going up?

Tax diversification. That is what a whole life insurance policy exudes. Money inside a whole life insurance policy resides in a completely different section of the income tax code than IRAs and 401k plans. It’s where the tax freedom still exists and it’s why billions are pouring into this area right now. Section 7702.

It’s About Freedom

Speaking of Freedom we have just discussed tax freedom, financial freedom (the use, control and liquidity feature via loans) and spiritual freedom, (the peace that comes from money not on Wall Street guaranteed via a legal contract.) If you happen to be a student of Freedom, you might know these attributes just happen to be what Thomas Jefferson and the founders of America believed in.

Commerical Banks Biggest Secret

Today the commercial banks hold billions of dollars inside cash value life insurance policies. It’s one of their greatest secrets. Why do they hold so much? It’s simple. They do it for the same reason that individuals should do it. Banks do it to insure their future profitability and existence. They do it to ensure their future Freedom. Banks enjoy the tax-free build up of the cash values. They can make use of the tax-free loan privilege. In fact, the Office of The Comptroller of The Currency advocates life insurance as an asset. It’s part of the banking laws. Up to 25% of commercial banks Tier 1 operating capital can be invested in life insurance.

One More Thing…

When you look back in the history of money over the last 100 years how much money has been lost on Wall Street? I think you could easily say billions. What about banks? More billions. How many banks have gone out of business? Over 10,000 banks have failed.

When you think of insurance companies, how many can you recall that have gone out of business? How many stories of grieving widows can you recall who did not receive death benefit checks from insurance companies? Although insurance companies are not perfect, the comparison to banks and Wall Street is not even statistically significant.

The reason…Banks and Wall Street are regulated by the Federal Government. Insurance companies are regulated by the 50 states.

That should explain a few things.