With the Federal deficit at historical highs, artificially low interest rates, banks leveraging money out of control, and the recession dragging on, it has become more difficult for many people to justify putting all of their money at risk in investments. This leads to many people having significant cash reserves. Whether this cash is for business, emergency funds, or savings dollars, many people are having trouble figuring out what to do with cash savings that is often times sitting in a bank account earning little to no interest.
Aside from the obvious problems with the banking system today (look at what happened in Cyprus), people are looking for a better place to keep their cash savings.
Problems with Most Cash Savings Options
When looking at what to do with cash savings, we may go through a few options in our head. We need something liquid–in case we need the money immediately for an emergency, investment, or a business opportunity–and we also need to get our money working for us, getting a rate of return, because every day our money sits still is lost opportunity.
So, we look at a few options. We can look into CD’s-but we have no liquidity and lock our money up. We can look at buying bonds, which have more liquidity than CD’s, however rates are so low that it isn’t worth the long term risk for such meager profits.
Ok. I Hear You. But What Other Options Do I Have?
I’m really surprised most people are so extremely undereducated about permanent whole life insurance. I know you have probably heard a lot of things about why whole life insurance is bad, but hear me out and see if there is something you may not have known.
What do you want from your cash savings? Well, you want a place where you are going to be able to use your money if you need it, no matter what you want it for. You want a place where your money is going to grow, but you don’t have any risk at all of losing any of your money. Also, you want to earn a competitive interest rate. Well, right now permanent life insurance policies from a variety of insurance companies are earning around 5 percent, and that’s tax-free growth.
On top of this, the money inside your policy is buying you death benefit–so if you were to die, or when you die, the death benefit will transfer with no taxes to your heirs. Also, you can get some tax write offs for using money inside your life insurance policy for business or investment use. You can’t lose money, there are growth minimums, and guarantees associated with these policies.
Did I mention it’s buying you a death benefit. I know I did, but to reiterate, you could have your money sitting in a life insurance policy, and it may be producing enough insurance for you to get rid of your term insurance. As an added bonus.
Probably changes your perspective a little bit on whole life insurance. Still a bit leery? That’s not a bad thing, but maybe it’s time to do some more self education on what we call cash value life insurance. It has some major advantages, but not everything’s perfect.
Understand, these whole life policies aren’t just your run of the mill policies you buy from your insurance guy down the street. These have to be properly structured for cash value to be effective as a cash savings. We’ll take a look next at a few disadvantages, then we can go over why supposed radio and TV “gurus” are against whole life insurance.
The Disadvantages
On the downside, you can’t just throw in a lump sum like into a bank savings account. It does take a little bit of planning ahead to maximize the efficiency of these policies. Also, you aren’t going to have 100% of your money available to you in the first year, it takes some time to build up the cash values. However, I have found that a majority of people see the benefits of having a death benefit in exchange for the long term tax-free growth and guaranteed minimums.
But David Told Me Not To Buy Whole Life
There are a lot of people out there saying that life insurance is a bad investment. But, they are also telling you that the market is a good investment, and if you have your money sitting in a bank account then most likely you have some concerns about the market moving forward. They have told us all to buy term and invest the difference, but look how well that strategy has worked out for our retiring generation.
But, in reiteration. Whole life insurance, structured properly, is more like a high interest savings account. The money is accessible to put into investments, and then to put back into the whole life. This way, when you’re investments are producing, use your money. When they aren’t, your money is safe, secure, earning interest, and buying you a death benefit.
So, What Should I Do With My Cash Savings?
Permanent life insurance may be the best thing you never knew about. It doesn’t fit everyone, but I have found that many people wish they had heard these concepts years ago.