What exactly is high cash value life insurance and how does it work?
High cash value life insurance is the type of whole life insurance policy that is used to make Infinite Banking as effective as possible.
In order for the Infinite Banking Concept to work effectively, we must have a policy with three key features: safety, immediate cash value, and growth potential.
Take one of these components away and the entire concept will fail.
This is why it is so important to have a properly structured whole life insurance policy that has been created and properly structured by an agent with experience in high cash value life insurance.
#1 – Safety
The first key competent in an effective high cash value life insurance policy is safety. Whole life insurance has innate safety benefits within the structure of the life insurance policy. This is why whole life insurance is used for Infinite Banking policies.
Whole life insurance is much more predictable than other types of investment insurance. For instance, many agents out there, usually with little experience in the field, will attempt to sell Universal life insurance policies as a high cash value life insurance policy.
But Universal life insurance policies are not like whole life insurance policies. Universal life insurance policies involve risks, serious risks.
Universal life insurance policies are illustrated by insurance companies to be sold. On paper, a Universal Life policy will often look much better than a whole life policy.
But the reality is, Universal Life policy must perform at an extremely high level in order to survive. The fees and costs of insurance go up every year. If the policy holder does not realize a significant amount of interest earnings, which in a Universal Life policy are tied to the market, then the policy fees and cost of insurance will be too high, and the policy will fail.
Because Universal Life policies are tied to the market, and because they involve heavy risk, they should never be used as an Infinite Banking policy.
Infinite Banking requires a high cash value life insurance policy that is designed to have no-loss provisions. Whole life insurance is the only insurance policy type that can offer the safety necessary for to execute the Infinite Banking strategy effectively.
#2 – Immediate Cash Value
A properly structured high cash value life insurance policy will have immediate cash value. Depending on the policy, this can be anywhere from 25%-75% or more of the total contribution in the first year of the policy.
The best way to achieve our short-term cash value goals is by adding a term insurance rider to the policy.
This also plays into our long-term goals as well.
For the most part, if a policy has zero cash value for years, it is probably not structured properly. The majority, if not all, properly structured high cash value life insurance policies will have cash value up front that can be immediately borrowed against and used.
If there is no cash value, this is a huge red flag. This means that the policy is probably not a high cash value life insurance policy.
#3 – Growth Potential
The last, and often most important, aspect of a proper high cash value life insurance policy is the potential for long-term growth.
In some cases, you may have the option to choose between short-term accessibility and long-term growth potential.
This can be a difficult decision to make. If you need money in the short-term, then often available funds will be the necessary path to take.
However, understand that the long-term growth potential can be severely obstructed by this short-term thinking. It is often best to play the long-term game and exercise some patience in order to achieve the best long-term results that high cash value life insurance can offer.
The term life insurance rider should, when properly applied, boost the long-term earnings of a cash value whole life insurance policy significantly.
The long-term growth should always be the main focus of a whole life insurance policy. Understand that an illustration is just that, an illustration. But, with proper structuring, the long-term benefits should be well worth it.
Is High Cash Value Life Insurance Right for Me?
High cash value life insurance is one of the best long-term savings vehicles available. It has some amazing benefits that you can read more about here. However, it is a long-term product that must be structured properly, by a professional you trust, in order to operate effectively.
Every investment has its pros and cons. Take the time to learn more about how high cash value life insurance can help you better prepare a solid financial future.