03. Leveraged Life Insurance

Normally, life insurance is purchased by paying the full premium, either annually or in installments. Occasionally, "participating" contracts are paid on a net basis by using the annual dividend to reduce the premium required. However, many people find their needs for life insurance require a premium outlay that will not fit within their current budgets.

Term life insurance is somewhat like renting a home - it is only a temporary solution. If the need for protection will continue, or even increase, the appropriate form of insurance is normally a permanent, whole life contract which can build cash value that can be used for such needs as education, business, emergencies, wedding, travel, home and retirement.

Leveraged permanent life insurance utilizes the increasing values of current insurance to help purchase additional new insurance, without exceeding budget requirements.

All life insurance protection has a cost, and the leveraging concept uses several sources of funds to defray that cost, frequently without any additional out-of-pocket outlay:

1. Tax savings generated by interest deductions (IRC Sec. 264)
2. Future tax-free dividends on old insurance (if any)
3. Future tax-free dividends on new insurance (if any)
4. Use of old cash values already accruing
5. Use of new cash values which will be generated

As one's income tax bracket increases, leveraging becomes more effective, and future tax increases can offset inflation.

The concept of leveraging is not new. For years real estate investors have maximized their worth by investing their own dollars as partial payment for as many real estate holdings as possible and then leveraging the balance. By using the same principle, you may be able to obtain more life insurance benefits without additional outlay.

Back