Benefit 1. Liquidity and Access to Cash
In today's economic environment, obtaining a bank loan to start a business or buy real estate or equipment can be challenging. As a result, entrepreneurs often rely on personal savings and investments to fund their businesses. This is especially true for people who start businesses after they retire and fund their company with money from their 401(k) plan. For these people, owning a participating whole life insurance can be extremely advantageous because it provides guaranteed, tax-deferred growth of their money as well as liquidity, access and control of it during their lifetime.
In fact, using the cash value in a whole life policy as collateral for a loan from the insurance company and then self-financing business purchases isn't a new idea. Walt Disney, after being turned down by banks, utilized the growing cash value of his whole life policy to start his first theme park. McDonald's founder, Ray Kroc, used this concept when buying out the McDonald brothers in 1961.
We will discuss the second benefit - protection from creditors in our next blog post.