I definitely can relate to this topic...
My blogs will consist of stories about people who face many of the same questions I ask myself. Adrienne, mentioned below, didn't realize she could smooth out the bumps in her cash flow.
Read her story below.
Adrienne is 33, a Real Estate Broker who loves making things happen. She knows what her monthly cash flow needs are and even carved out a financial plan for her retirement.
However having little control over the timing of her closings has at times made her liquidity tight and has not enabled her to regularly save for her retirement.
Many people are not aware of the concept: cash value of Whole Life Insurance; giving you the opportunity to become your own banker.
Whole Life allows the cash within a policy to grow tax free. Adrienne could access the cash as "short term policy loans" to help smooth out her cash flow needs.
When Adrienne takes out a policy loan she can create her own repayment schedule. It makes sense when Adrienne receives her commission for her to repay her policy loan in full. This way her policy's cash value and death benefit will be restored, creating the opportunity for her to take out future policy loans.
For her occasional cash needs: Adrienne won’t have to undergo a credit check or be asked why she needs the cash. Adrienne should look at committing to a Whole Life Insurance Policy, where their policy loan rates are much lower than credit cards or taking out a bank loan.
Here are 2 interesting facts:
When you take out a policy loan, the money for that loan is not removed from the cash in your Insurance Policy; the loan itself comes from the Insurance Company. The cash in your Policy is pledged as collateral for your loan. If you do not pay back the loan the Insurance Company simply uses the collateral, which is the cash, to pay back your initial loan along with the interest that accrued.
The above point is also significant for something called "Non-Direct Recognition". Here the Insurance Company will continue to pay out the same dividends to your Participating Whole Life Policy regardless of the amount of the policy loan you have taken out.
I can relate to Adrienne's life; feeling confident she'll achieve her numbers by year's end. I myself have always held positions that were mainly commissioned earnings.
And today with many more people becoming more entrepreneurial managing their income and cash flow streams need to be considered when committing to their new endeavors.
With that said starting earlier rather than later in purchasing a Whole Life Policy will give the policy time to grow and accrue significant cash in it that you can then consider taking out short term policy loans during your working years.
And as you plan for your retirement years you will have the cash/policy loans available to help you hedge your financial planning when the markets go south.
All is not lost if you don't already hold a Whole Life Policy.
It's possible for you to still customize a policy that will give you the benefits just mentioned. Keep in mind that starting now to put a plan in place that the policy's cash value needs some time to grow.
You can for example, look at a 10 year or 20 year Whole Life Policy where you finish paying your premiums in either 10 or 20 years.
You are planting a seed to set yourself up for your future cash flow needs. Some people look at this type of planning similar to a Roth IRA. Because you are funding the policy with after tax monies that later through policy loans you can have access to tax free.
And further down the road the cash that has been accumulating in your policy can help you jump start your retirement planning.
Whole Life policies, from different Insurance Companies, will offer you different benefits and that's where reviewing the pros and cons of the top listed companies you may get approved for is crucial.
If you intend to take out policy loans it is crucial you understand the mechanics of how your policy loans are calculated and its impacts on the cash and death benefit of your policy.
Debra K. Bedell
Insurance - a great Hedge against Risk.