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Insurance Policy

Leveraging Your Life Insurance to Your Best Advantage

It could be said that an annuity can help maintain your cash flow while still alive, and life insurance maintains the financial flow of those around you once you’re gone. In some cases, a structured settlement can be used to cushion your retirement, and open the possibility of investing that money elsewhere. If you’ve got one, you can estimate your settlements value using a sell structured settlement calculator.

Unfortunately, we don’t all have access to a pot of cash. Today, I’d like to introduce you to the idea of using your life insurance as an all-inclusive plan for both your current and future financial needs. Something worth your consideration, is that your life insurance policy may have the potential to be borrowed against at a competitive interest rate. This can happen if your policy has cash value. If you have more than one policy, you may also opt to cash out completely.

One example is a client of mine who purchased a policy many years ago. He is now well into his sixties and has the ability to borrow at a locked in rate on that policy. This is not his money, it is a collateral loan. His borrow rate is a fixed guaranteed rate of 2.3 percent. What that means to him, is if he wants to pull out $50,000, he could do that and only pay the interest at the 2.3 percent. The interesting part about this, is if it is used towards an investment, that becomes a tax deductible dollar just like a mortgage interest. The actual contract itself is also earning a dividend. So, he is actually making money when he borrows money, and these numbers are at a guaranteed fixed rate.

On a more famous note, Walt Disney built Disneyland using a life insurance policy. He initially went to the bank, and they told him that building an amusement park in California was a terrible idea. So, he went into his families life insurance to come up with the funding. Another example is JC Penney and Pampered Chef, who both went to a bank initially, and had to settle on cashing in a policy to get their businesses off the ground.

Another use for a life insurance policy is to secure your business to your family in the case of anything happening to you. This is considered to be a form of exit strategy, which is often the last thing that a young, successful woman is thinking about, but it is never too late to start preparing for the future of your loved ones. A life insurance policy is one of the best ways to prepare your business in the case of an unexpected death.

The way it works, is the business owner/partners agree on a buyout price for the business or share of the business. The policy is then set-up to pay the buyer a predetermined sum of money, allowing them to purchase the business, giving the money to the family as immediate compensation. One thing that far too many business owners don’t realize, is that when they die, and they do not have a specific exit strategy for their debts, they are leaving their family open for a disaster.

Often a spouse may not have the ability to take over a business, and they are forced to liquidate its assets to close any debt the business has incurred. There are many stories of millionaire entrepreneurs whose fortunes were lost after an unplanned death. Joe Robbie, owner of the Miami Dolphins, is one such story.

Robbie died unexpectedly at 73, leaving his family without an exit plan for his business entities. The family was forced to auction off much of his estate at $0.32 on the dollar. Robbie’s lack of proper planning resulted in a loss of $45 million in estate taxes. Over the next four years, his families net worth will dissolve, leaving them with no other alternative but to sell the one thing of value left in their position, the Miami Dolphins, and they did so at a crushing loss.

Another consideration, if you have a big enough pot saved, is to begin dividing your net worth early, as a means to avoid excess tax. As Warren Buffet has said, “I don’t want to leave my kids anything when I’m dead.” What he is not stating, is that he would rather give it all away while he is alive. He doesn’t want to wait until he’s dead. Can you imagine the state and tax he is going to have? He’s got to give it away while he is still alive.

Evan McTavish writes on investments from stocks and annuities, to buying structured settlements and analyzing other financial opportunities. In addition to devoting a considerable time towards researching undervalued stocks, he utilizes an eclectic approach that combines fundamental research and technical analysis.

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