How to Set Up A Cash Flow Insurance Policy

How To Use A Cash Flow Insurance Policy

What do you do with the cash value in a cash flow insurance policy? There are two primary ways to access this value during your lifetime—via withdrawals or policy loans. Here’s how each method works:

WITHDRAWAL

When you take a withdrawal from your cash flow insurance policy, you reduce the death benefit. Any money you withdraw is tax-free, up to the amount you’ve paid in premiums. Any wealth generated from returns is subject to taxes, but dividends are usually considered tax-free. Taking a withdrawal from an insurance policy is similar to taking a withdrawal from your bank savings account: It reduces funds available in the account, any gains are considered taxable income beyond what you’ve deposited into savings, and future gains are calculated based on the remainder of funds.

POLICY LOAN

When you take a policy loan from your cash flow insurance policy, it doesn’t affect the death benefit unless the loan is still outstanding when you pass away. Any money you borrow is tax-free, including wealth generated from returns and dividends. Unlike a bank savings account, when you utilize a policy loan with a mutual whole life insurance policy, future gains are calculated based on the value of the account—regardless of how much you’ve borrowed. In other words, you can borrow a dollar and earn a return on it at the same time. 

Here’s a basic example of how a policy loan works:

Paul has $50,000 in cash value in his cash flow insurance policy. He earns a 5% guaranteed rate of return ($2,500/year). Paul takes out a $25,000 policy loan at 7% interest ($1,750) charged by his insurance company and pays the loan within the year. He will still continue to earn interest on $50,000, in spite of the outstanding loan. His positive net interest is $750 ($2,500 – $1,750). 

Policy loans can be used for real estate, business capital, college tuition… anything you want. They can even be used for retirement. In this case, the loan isn’t paid back, it’s deducted from the death benefit of the policy. Whether this option is right for you depends on your family’s needs and whether or not a significant death benefit is important for your financial goals.

Cash Flow Insurance With Paradigm Life

The expert Wealth Strategists at Paradigm Life not only understand how cash flow insurance with a Wealth Maximization Account works, they own cash flow insurance policies themselves and have first-hand experience using whole life insurance as a financial foundation. They’ve worked with thousands of clients to set up participating whole life policies properly structured to help them reach their financial goals.

Now it’s your turn.

Schedule a free virtual consultation with a Paradigm Life Wealth Strategist today to find the right cash flow life insurance policy to help you achieve your financial goals.