Hey! Who wants money? Who wants to accumulate great riches throughout their life? So much that they can say: I am financially free for the rest of my life? Just about anybody, right? This time, I would like to make some points clear because I heard so many things regarding this topic: How can I use life insurance to be financially free?
Please, take a moment and try to answer this one by yourself.
Okay, your moment is up. What have you discovered between life insurance and financially free? Have you made some links whatsoever? What makes the people in the industry of life insurance believe that life insurance should be the proper strategy to become financially independent? Is it because people working hard for their money don’t have a clue about this? Or maybe because they charge a higher premium? Or just because it is one of the most profitable product for their bottom line?
Actually, when thinking about life insurance, or any other type of insurance, the primary and only use for those products is to protect you and your family in case something bad happens (car accident, house has burned down, you spouse died, etc.). So, based on that, when was the last time you shop around and bought a car insurance that offers you to put money into a special kind of account, making sure that while you,re paying for your car insurance, you also accumulate wealth? And when you cancel your policy, after one or two years, they will pay you back all the money you have put into your car insurance?
Guess what, it won’t happen! It should be the same in life insurance. Because the reason this product exists in the first place is to protect you and your family in case somebody who has financial responsibilities dies prematurely, ie, before having accumulated enough money to live with and that it won’t hurt the family’s wallet.
Proper planning should always consider looking at the short term and evaluating what the life insurance needs are in case you die, regarding your financial situation (spouse, kids, house, debts, etc.). This planning should be established for as long as you actively work, because when you retire, you are taking the decision based on the money you have, that you don’t need external income anymore. Based on that, you now build a life insurance program according to the amounts and the time period you need. By doing so, you make sure that whatever happens during the course of the coming years, nothing will put a financial burden on your family’s surviving members. To make sure that you can build the proper program for you, you use term life insurance to model your needs throughout the years. You will then see that you will pay much less for your premium each month… which brings us to our iniital question!
How To Become Financially Independent With Life Insurance?
Now that you are properly protected and that if a decease happens anytime during the future years you know beyond a shadow of a doubt that your family will financially survive, we can start planning on build wealth. Guess if we are going to use life insurance to accumulate that money? Absolutely not! What do you think of using an investment tool instead of an insurance tool? Would that be fair enough? Do you think that you could find a product that really fits your exact needs?
There are lots of ways to accumulate money for retirement and becoming financially independent. The most useful tool to use when you begin, and you don’t need large sums of money to use it, is to set up systematic program that is going to put a certain amount of money each month in a mutual fund. Those funds have a large spectrum of risk, from money market to aggressive specialized funds, you should sit down with an investment specialist to help you select the one that fits your needs. You’ll be able to own a portfolio that you will manage based on your needs, that will generate a far greater return than a whole life policy and you will also be able to use an annuity later on when you’ll stop working. You have by far more flexibility and power than a life policy has to offer when it comes to investments.
The first amount you are going to set aside each month will be the money saved by canceling your whole life or universal life policies. Just by doing so, you can generally save from 30% to 70% of your monthly premium. That’s a start, right?
To be sure that your money grows without paying large sums of tax on it, make sure you use a tax-deferred account. There are lots of rules, depending on where you live, but those help you accumulating your wealth, without paying tax now on the capital gain or interest you have made. Because you make more money each year while you are working at your full time job than the amount of money you will need at your retirement years, it is best to postpone the moment you are going to pay for your tax.