What is Net Wealth Finance?

Net Wealth Finance is the term we came up with to describe funding cash value life insurance to build long term wealth. There are many other names for this. The most common name is the “Infinite Banking Concept.” There are many reasons why we prefer the term Net Wealth Finance, which we will save for future post.

When most people think of life insurance, they likely think of it as a way to protect their loved ones in the event of their untimely passing. And while that is certainly a critical function of life insurance, cash value life insurance also has the potential to be an effective tool for growing your wealth.

So, what is cash value life insurance? Essentially, it’s a type of permanent life insurance policy that includes a savings component. A portion of your premiums goes toward the cost of the insurance, while the rest goes into a cash value account that grows tax-deferred over time. As the cash value grows, you can borrow against it or withdraw funds to use for any purpose you choose.

Advantages of Net Wealth Finance

One of the key benefits of cash value life insurance as a wealth growth vehicle is that it offers tax advantages that other financial vehicles may not. Because the cash value grows tax-deferred, you won’t pay taxes on any gains until you withdraw the funds. Additionally, if you borrow against the cash value rather than withdrawing it outright, you can avoid paying taxes on the loan proceeds.

Another advantage of cash value life insurance is that it offers a degree of flexibility that other types of accounts may not. You can choose how much you want to contribute to the policy each year (up to certain limits), and you can adjust your premium payments or coverage levels as your needs and goals change over time. And because the policy is permanent rather than term-based, you don’t have to worry about it expiring before you have a chance to benefit from the cash value growth.

Net Wealth Finance can be a great way to fund real estate investments or business ventures. The cash value component of cash value life insurance can be used as a source of funding. You can borrow against the cash value of the policy to finance the purchase of real estate or to provide capital for a business venture. This can be an attractive option for individuals who may not have access to traditional funding sources or who do not want to risk their personal assets in the process. The other bonus is that your funds will continue to earn, even if you access them to fund other endeavors.

Another option is to use the cash value as collateral for a loan. This can allow you to secure a lower interest rate than you might otherwise be able to obtain. In addition, the loan does not need to be repaid immediately, giving you more flexibility in terms of repayment and allowing you to focus on building your real estate portfolio or business. In many ways, you can treat it as an interest only line of credit that can choose to pay off or not.

One of the major advantages of the types of life insurance products we use is the downside protection or guaranteed returns. Whole life insurance has inherent guaranteed returns written into the contract. The indexed universal life (IUL) insurance products that we prefer can provide a small guaranteed return or at most a 1% loss in a falling market. Other posts will go more into the specifics of whole life vs IUL.

Disadvantages of Life Insurance

Of course, like any financial vehicle, cash value life insurance is not without its drawbacks. One potential downside is that the fees associated with these policies can be higher than those of market investment options. Additionally, because the insurance component of the policy can be more expensive than a term life insurance policy, you may not be able to afford as much coverage as you would with a term policy.

Some carriers and products do not have complete flexibility of funding. You may plan to be able to pay a certain amount of premiums, but then life happens and you can’t fund as much. This can be an issue, especially if you have a poorly designed policy. We mitigate this by designing policies that have significantly lower minimum funding levels, but the potential to fund as much as the people can afford.

Life Insurance Enables Generational Wealth

For my personal situation, Net Wealth Finance serves as my foundation for wealth growth. One of our other posts goes into more detail of how we used our life insurance to sustain us through a literal lightening strike. We have used it as our business line of credit. We replace traditional financing for many aspects of our lives through our life insurance. Overfunded cash value life insurance can generally fit into the financial picture of most people.

Overall, cash value life insurance can be a powerful tool for building wealth over time. By combining the benefits of permanent life insurance coverage with the potential for tax-deferred growth and flexibility, these policies offer a unique way to save for the future while also protecting your loved ones. If you’re interested in exploring this option further, book a meeting with us.