Posted on December 11th, 2023

Life insurance has a long-standing history as a financial tool for protecting families from unforeseen circumstances. However, beyond its fundamental purpose, many families have also leveraged life insurance to build and grow their wealth. In this article, we will delve into specific strategies and examples of how families have effectively utilized life insurance to create a solid financial foundation for themselves and future generations.

Understanding Life Insurance as an Financial Vehicle

Life insurance goes beyond providing a safety net in the event of the policyholder's passing. It can also serve as a strategic investment vehicle, offering tax benefits and potential for long-term growth. Families have recognized the value of using life insurance to accumulate and preserve wealth over time, making it an integral part of their financial plans.

Whole Life Insurance and Wealth Building

Whole life insurance, with its cash value component, has been a preferred choice for families aiming to build wealth. By paying premiums, policyholders not only secure a death benefit for their beneficiaries but also build cash value that can be accessed during their lifetime. This cash value can be used for various purposes, such as supplementing retirement income, funding children's education, or even as collateral for loans.

Related: What Is Cash Value Life Insurance? 

Term Life Insurance as a Wealth Protection Strategy

While term life insurance is typically viewed as a pure protection tool, families have utilized it strategically to safeguard their wealth-building efforts. By securing substantial coverage at a lower cost, individuals can allocate more of their resources towards investment and wealth accumulation without compromising the financial security of their loved ones.

Related: What Is Term Life Insurance? 

Using Life Insurance in Estate Planning

Estate planning is a critical aspect of wealth management, and life insurance plays a pivotal role in this domain. Families have employed life insurance policies to facilitate seamless wealth transfer, mitigate estate taxes, and ensure the preservation of their assets for future generations. Through effective estate planning, families can leverage life insurance to leave a lasting financial legacy for their heirs.

Irrevocable Life Insurance Trusts (ILITs)

Irrevocable Life Insurance Trusts have been a popular choice for families seeking to protect their wealth from estate taxes and probate costs. By placing life insurance policies within an ILIT, families can ensure that the death benefit is distributed according to their wishes, free from the complexities and expenses often associated with the probate process.

Related: What Is A Trust? 

Wealth Equalization with Life Insurance

In cases where families have complex asset distributions, life insurance provides a mechanism for equalizing inheritances among beneficiaries. By designating beneficiaries and utilizing life insurance proceeds, families can address potential disparities in inherited wealth, fostering harmony and fairness in their legacy planning.

Case Studies of Successful Wealth Building Through Life Insurance

Real-world examples can effectively illustrate how families have harnessed the power of life insurance to build and preserve wealth. Through case studies, we will showcase diverse approaches and outcomes, offering valuable insights for readers considering similar strategies within their own financial plans.

Walt Disney utilized his Whole Life policy as his own private family bank. Walt Disney’s Whole Life cash value provided the necessary liquidity to fund his dream when traditional banking snubbed him. At the time it was a vision that only he could see, but one that the masses from around the globe would someday come to enjoy.

Walt was trying to start his business but had a very difficult time getting banks to partake in his vision of a cartoon mouse and duck that would bring in the masses from around the world. The Disneyland Source Book quotes Walt as saying, “I could never convince the financiers that Disneyland was feasible because dreams offer too little collateral.”

Thankfully, he had previously built his own bank using Whole life Insurance. The Disneyland Source Book later goes on to say, “Unfettered [Walt] borrowed against his life insurance and sold his second house just so he could develop his idea to the point where he could show others what he had in mind. Studio employees worked on the project paid from Walt Disney’s personal funds.”

Because Walt Disney had this guaranteed access to liquidity, he was able to eventually capitalize on his dream and create a multinational empire for generations to enjoy.

During those lean years, however, his policy’s cash value continued compounding for him despite the loans needed to fund his vision. Not only that, but his policy continued to provide valuable protection for Disney’s family since without him, profits from his dream would have certainly never come to fruition.

Ray Kroc was a man determined to grow his business from a quality local hamburger shack to a national pastime and household name.

Success didn’t happen overnight for Ray Kroc. In fact, he didn’t take a personal salary for the first 8 years so that he could preserve precious cash flow. Ray was determined to invest those dollars where he had the highest growth potential, his business.

It’s documented that Ray Kroc borrowed against two different cash value life insurance policies to pay his key employees along the way. He also funded McDonald’s hallmark branding campaign using the precious liquidity provided by his whole life insurance policy. Ronald McDonald was born because Ray Kroc was able to acquire funds at any time for any reason from his own private family bank.

With Ray Kroc, nobody knows for sure how astronomical the rate of return of that policy loan actually was. However, we all know about the billions upon billions of customers that McDonalds Restaurants have served since then. This is a direct result of that key early growth that was largely self-funded by Ray Kroc’s whole life insurance policies.

Let’s now discuss how using whole life insurance as an emergency fund helped one very well-known entrepreneur save his family business empire from the tailspin of the Great Depression.

J.C. Penney had his chain of department stores on auto-pilot and cash-flowing nicely during the boom of the Roaring 20’s. It was the quintessential American dream fulfilled. Like most business owners at this stage of prosperity, Mr. James Cash Penney diversified into a vast stock portfolio as well as acres upon acres of Florida Real Estate.

Perhaps the least exciting of all his investment choices was a very large Whole Life Insurance policy, with its conservative but steady growth rate. As a responsible employer and head of household, it’s likely that Penney got the policy more for the death benefit component than for the cash value component.

Regardless of why he bought it, his Whole Life insurance policy quickly became his favorite asset class after the Stock Market crashed in 1929. The Great Depression ensued. Real estate tanked, especially overvalued Florida real estate. Banks failed by the dozens as the masses came in demanding their deposits back.

However, there are much stricter reserve requirements placed upon life insurance companies than on banks. Many of the prominent life insurance companies of the time actually participated in bailing out the banking industry. These ultra-conservative life insurance companies were therefore in a very enviable position in terms of liquidity, and so were their Whole Life policyholders.

Thanks to the contractual growth and guaranteed liquidity inherent in a whole life insurance policy, I guess you could say that life insurance companies also bailed out J.C. Penney during the Great Depression.

Around the same time that the crash hit, James Cash Penney’s health was starting to give way, probably due to the stress of the situation. How reassuring it must’ve been for J.C. to know that even though he took a large loan against his cash value to save his business, there would still be a substantial death benefit paid out to his family if he were to pass away during that tumultuous time.

Thankfully Mr. James Cash Penney was able to right the ship with his health and also with his most valuable asset: his business. That much-needed cash infusion from his Whole Life Insurance policy provided the necessary liquidity to continue purchasing inventory and paying salaries to keep the doors open long enough to recover.

Conclusion:

Life insurance, when approached strategically, can be a potent tool for wealth building within families. By understanding the various types of life insurance, integrating them into comprehensive financial plans, and leveraging them for estate planning and wealth equalization, families can secure their financial future while creating a lasting legacy. As you consider your own financial objectives, exploring the multifaceted benefits of life insurance as a wealth-building instrument is a prudent step toward achieving long-term financial security.  

Here at Family For Life Insurance, we specialize in helping educate and properly structure life insurance to build wealth specifically for your needs and goals. Click HERE to book your free consultation on setting up your own personal infinite banking policy today.