Updated: Jul 30, 2020
Without a doubt, life insurance can be a powerful tool to provide financial security and can also be used in your retirement planning. Read below to see some examples of how life insurance impacted a person's life.
EXAMPLE 1 - Annual Rate of Return - 8.61%
As a successful tax accountant, Rob Mitchell was the kind of guy who managed his money well. For years, he had been setting aside money in traditional financial vehicles to build a retirement nest egg. When he discovered The Life Insurance Fund approach, he researched the strategies in-depth and was intrigued by the unique liquidity, safety, predictable rates of return, and tax advantages. He ultimately decided to reposition some of his money into policies for him and his wife.
At age 56, he transitioned $400,000 into a policy with one insurance company, and another $400,000 into a second policy with a different insurance company, each policy with a $1.2 million death benefit. He chose to go with two companies to diversify his portfolio, taking advantage of specific policy features and indexes at each company. The Mitchells fully funded their policies in the initial five years, during which time the two policies averaged a rate of return of 8.61% interest. Since they have ample income elsewhere, they are not taking any taxfree income from these policies. They have designated their Life Insurance Funds purely for retirement planning, which means the money in the policies is free to continue to compound at full value. When they retire in a few years, they will be able to take a healthy annual income from their policies until they pass on, at which time their heirs will receive a taxfree death benefit. The Mitchells couldn’t be more pleased.
EXAMPLE 2 - Annual Tax-Free Income of $150,000 to $200,000
At age 60, Ben Coleman could see retirement just over the horizon, and he decided to open a Life Insurance Fund. He wanted to move $780,000 into the policy, a combination of money from regular income and funds in a taxable account (where performance was lackluster and taxes took a regular bite). The policy started with a $1,875,000 death benefit.
dr He had planned on funding the policy over five years, but there were a few delays. Thanks to The Life Insurance Fund’s flexibility, that was not a problem. He ended up fully funding it in six years, and like the Mitchells, Ben will not touch any money in the policy until he retires. He opened the policy strictly for retirement planning and eventual wealth transfer to his children through the income-tax-free death benefit. So far, it has earned as much as 17% annual interest, with an average annual rate of return of 7.8%.
A couple years ago, Ben remarried. He opened a second Life Insurance Fund, with a $600,000 premium bucket. With retirement income a priority, they chose a policy that does not pay out a death benefit until the second spouse passes on, which reduces costs. He pays $10,000 a month into the policy, and plans to fully fund it in five years. Between the two policies, Ben and his wife will be able to take an annual tax-free income of $150,000 to $200,000 when they retire. For Ben, the ability to earn a predictable rate of return, to know that his money is safe, and to look forward to a robust annual income—free of income taxes—provides a much brighter future than his previous approach. This is a retirement he can really look forward to.
EXAMPLE 3 - Starting Young: How To Take Advantage During Youth
Colby was in his early 20s, he decided to follow in his parents’ footsteps. They had opened Life Insurance Funds several years earlier, and now as a young adult, Colby wanted to start one of his own. Still in school and on a limited budget, the policy’s premium bucket was just $10,000, with a $100,000 death benefit. He paid what he could into the policy every month, $50 to $75.
When Colby married a few years later, he and his wife opened a similar policy on her—a $10,000 premium bucket with a $100,000 death benefit. Eventually those policies were funded, and after graduate school, when money was more plentiful, he opened a third Life Insurance Fund, this one with a $100,000 premium bucket and a $720,000 death benefit. With a young family, he typically paid just $500 a month into the policy, planning on funding it over ten years. After the sale of some property, however, they were able to finish funding the policy earlier than anticipated, in its sixth year.
With rates of return on their polices averaging 7% to 9%, they feel content knowing they have money working for them in safe financial vehicles that they can turn to for tax-free income during retirement. They appreciate knowing if an emergency arises, they can borrow money from their policies. And still in their 30s, with the death benefit in place, they feel reassured that should anything tragic occur, their growing family will have the financial means to continue moving forward.
EXAMPLE 4 - The Mistake of Ending A Policy
Bruce Leavitt opened a Life Insurance Fund policy, designed with a $600,000 premium bucket and a $2 million death benefit. He was in the middle of the funding process when he remarried and had a son. His new wife was not thrilled with the idea of money going toward a life insurance policy, when she would rather have the cash on hand. She argued that her husband was so healthy, he wouldn’t die any time soon, and they would have many more years to plan for retirement.
Bruce stuck to his original plan and continued funding the policy for another year or so, but he eventually acquiesced. He paid the surrender charges and cancelled his policy, pulling all his money out. Not long after, the unthinkable happened. While hunting, Bruce was fatally shot by another hunter who mistook him for an animal rustling in the bushes.
Not only was his death a shock and devastating loss for his family, but his wife was now left behind without financial security. Had they maintained the policy, she would have had millions of income-tax-free death benefit to empower her to raise her son in relative comfort. But without the policy, she could not afford to maintain their lifestyle and eventually had to move back home to live with her parents.
EXAMPLE 5 - A Death Benefit That Was Needed
Things had always been tight for the Millers. Starting out as a young couple, kids and responsibilities came fast, with no extra time or money to pursue a college degree. But Brian had always hoped to be able to do more for his family, and in his 40s he realized his dream of going back to school to become a chiropractor.
As he launched his practice, he couldn’t believe how much he enjoyed going to work. He loved making a difference for his patients and was looking forward to making this second career last well into his 70s. He and his wife, Lisa, were thrilled; life was now taking the shape they’d always longed for. They were able to buy a new home, help their children (now in college and starting their career), travel, and save for retirement.
Brian and Lisa opened a Life Insurance Fund, designing it to receive ongoing annual payments of approximately $100,000 for the next twenty years. After their second annual payment, however, Brian learned that he had terminal brain cancer.
With just three months to live, he and Lisa made the most of their time together with their children. It was heartbreaking to watch their sorrow, but also a relief to see their calm, knowing that Lisa would receive an income-tax-free death benefit of $3.5 million. Brian was grateful he had set things in motion so his wife and family would be financially secure in his absence.
After Brian’s passing, Lisa was able to use part of the death benefit to pay bills and living expenses, and she put the rest into a new Life Insurance Fund that will provide tax-free income for the rest of her life—and an income-tax-free death benefit for her children when she eventually passes.
If the Millers had chosen a traditional financial vehicle, that $200,000 they set aside—at even a stellar 10% or 20% growth rate over two years—would have left Lisa with under $250,000 (with taxes due, to boot). Instead, she received $3.5 million, income-tax-free. She’s able to put that money to work to provide a comfortable life, with up to $200,000 tax-free income a year for the rest of her life, and ultimately, a valuable death benefit to leave as a legacy for her family.
EXAMPLE 6 - $1.8 Million Tax-Free To Heirs
Gary Lowell was heading into his retirement years when he came to us a few years ago. He was concluding a successful career; had been prudent with his earnings; and had invested in multiple high net-worth assets. He wanted to set aside a portion of his money into a Life Insurance Fund, strictly as a death benefit for his heirs.
Specifically, he wanted to move $750,000 from a brokerage account into a Life Insurance Fund. Gary was tired of the ups and downs of the market, and he wasn’t thrilled with the hits that account had taken over the last several years. He wanted to park that $750,000 in a Life Insurance Fund, safely protected from the downturns in the market, earning a predictable rate of return. And he wanted the reassurance of knowing that money would pass on to his heirs as an income-tax-free death benefit.
To remain in compliance with TAMRA, Gary needed to transfer the money incrementally, over the next five years. So we helped him develop a plan to move the $750,000 from the brokerage account into a Life Insurance Fund over five years’ time. The Life Insurance Fund will continue to earn interest until the time of Gary’s passing, at which point his death benefit (currently at $1.8 million) will transfer to his heirs income-tax-free.