The value of life for most people means one that is filled with happiness, joy and created memories. The value of life to insurers means something different. Life insurance is one way that insured people can receive a benefit when an insured event like death happens. There are two types of life insurance policies that are common, but only one form builds the most cash value over time. As an insured person, you can make the decision to withdrawal accumulated funds before a total payout is provided upon death. This is known as the cash surrender value of life insurance and some people use these payment distributions to fund investments or to start a business.
A deposit account like a savings account can be compared to a whole life insurance policy. Life insurance policies can be paid monthly, quarterly or annually and will build wealth over time. The premiums that are paid will accumulate interest tax-free and a cash value is created. Someone that has a policy for 10, 20 or 30+ years likely has a hefty cash surrender balance that can be used like a loan. The money can be withdrawn and used for many purposes including investing in real estate, commercial real estate and turn key property solutions.
When considering ways to use the invested funds, taxation is one area that must be explored to get the full benefit of the cash surrender value. Since the interest earned on a whole life policy is regular income, it will be tax upon removal in most circumstances as a capital gain. Many people find that putting a down payment on an investment property or purchasing one for a good price is very possible by cashing out the equity in a whole life policy. This provides an alternative to investing with an IRA, private funds or other loan financing.
Annual interest is compounded in a whole life insurance policy and applied to the cash value. As the income grows, it can usually be withdrawn after a period pre-selected by the life insurance company. If the cash value is not taken out during your lifetime, the benefit will usually not be paid to beneficiaries of the policy and only the agreed upon maximum when the insurance was purchased. This means that if you have a $100,000 death benefit and a $35,000 cash value when you are deceased, only the $100,000 would be paid and the $35,000 will be lost.
Whole life insurance policies can be bought, sold, transfered or loaned against during the term of ownership. If you are searching for creative ways to finance an investment property, taking a second look at a whole life insurance policy cash value that you own could provide you with an alternative funding source. There are many ways to invest in real estate and being smarter with your time and your money could prove to be a winning strategy as a beginning real estate investor.