3. Life Insurance As An Investment, Not An Expense
Many people say permanent life insurance is too expensive, especially when moving assets from other accounts to permanent life insurance, but they forget two things:
a. Other accounts have costs too, and they could be a lot higher, but you just don't realize them. For example, assets invested in mutual funds, many people forget mutual funds have annual expenses that are based on your total invested assets. When your asset is small when you are young, you might think such cost is negligible; but when your assets grow to millions of dollars, your fund expenses could be big numbers.
b. For funds withdrawn from an IRA and put in a permanent life insurance policy, there will be a tax to pay. But don't treat this as an incremental expense, because you will have to pay that tax at some point anyway, probably at higher tax rates in the future.
Once the funds are in a permanent life insurance policy, they are simply located in a different and far better long-term asset than an IRA or 401(k). The funds in that new location, the life insurance policy, remove not only the tax risk, but can also eliminate the stock market risk, if you pick the right permanent life insurance product.
In our next blog post, we will discuss another important permanent life insurance benefit - lifetime benefits.