Planning Ahead
Let’s be honest. Life is short, things happen, and loved ones pass away unexpectedly, sometimes not only leaving their families in grief, but in financial distress, especially when the one to pass is the provider or source of income for the family.
So how do you protect against this?
Well, the first thing to do is to get your affairs in order ahead of time. You can do things like:
- Writing your will
- Hiring an estate planner, financial advisor, and attorney
- Figuring out if you should put your properties in a trust, or how you want to leave things to your loved ones, in a way that minimizes their tax liability while also providing them protection
- Ensuring your accounts have assigned beneficiaries and that there is a means to pay the bills for an extended period of time
Now the last item on the list above is what most have a hard time doing. Finding a way to provide for your family after you’re gone is not something most people want to even think about, let alone plan for. However, it is these families that have the most difficulty after losing an integral member and provider in the household. Not only are the survivors expected to carry on financially, but they are expected to do so by picking up the slack while grieving their lost loved one. I wouldn’t want that for my family.
What can I do about it?
One effective solution for providing for your family or loved ones is life insurance. It’s a relatively inexpensive investment in their financial well-being should the worst happen, and in most circumstances should allow for a more comfortable transition, especially from a financial standpoint. Now, it’s important to note that not all life insurance policies are created equal, and not all providers are the right choice for protecting those you care about.
Indexed Universal Life
Indexed Universal Life, also referred to as an IUL, is a life insurance policy that when structured correctly can be leveraged not just into financial security for your family after your passing, but for a comfortable retirement for yourself and your spouse hopefully long before that point. An IUL has what is called a cash value, and every month a portion of your premium payment goes into that cash value.
Compounding
What’s great about this cash value is it grows year-over-year, matching the stock market, and compounding your returns, but it also typically has a floor, meaning you also can’t lose money in the account, even if the market crashes. This way you get to participate in the upside but none of the downside. Also, you can borrow against your cash value as a loan, but your cash value remains in your policy and continues to accrue interest like it was never touched. You can then use the borrowed funds to invest in another cash-flowing asset that can provide you with some passive income and either repay the outstanding loan, or make additional contributions to your cash value.
Leverage
What many wealthy people do is they contribute to their IUL cash value and borrow against it to invest in real estate. As long as the interest terms of the loan are less than the average rate of return on the cash value (which again matches the market), and the return on the investment you made with the borrowed funds is greater than the loan interest, then you can effectively have your money working for you in 2 places. This of course is just an example, but can be built upon to create massive wealth-building opportunities. I’ll leave the possibilities up to your imagination.
Retirement
Similar to the previous example, you can also choose to borrow against your cash value, but just use it to fund your lifestyle. Note, that I’m avoiding use of the word “income” here to describe this strategy, because technically the borrowed funds are “debt” and not taxable income. However, you can effectively defer loan payments indefinitely, and, upon your passing, your cash value will repay any outstanding debt on those loans before the remainder, in addition to your death benefit, is paid out to your beneficiaries.
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