Generational wealth is a game changer for anyone who wants to live or have their children live a life without poverty.
Individuals all over the country come to California in hopes of fame and fortune, but the one thing people forget about when trying to build massive wealth, especially generational wealth, is life insurance.
Life insurance can easily build generational wealth, when you know the tricks of the trade.
Lucky for you, I will show you how below:
Build a Life Insurance Plan that exceeds your needs
When families or heads of households get life insurance they typically get life insurance policies that meet their basic Core Foundations.
This is not a bad thing, but if you want to ensure that your family will have generational wealth, you will need to increase the coverage amount beyond your Core Foundations.
If you don’t know what the Core Foundations are or how they apply to life insurance, take a look at this article for more information here.
Say for example your Core Foundations equal to $250,000, if you stop there, your family will be set right for a few years, but after that, they will either have to go back to work, or your children will have to start fresh.
If you’re not there, it will be hard for them to build wealth without that support structure in place.
You could bump up the coverage to double the amount.
But why stop there?
Figure out how much would be needed to buy real estate with, invest in index funds, or start a business.
As long as the life insurance you buy meets your monthly budget, anything is possible.
The sky’s the limit with life insurance especially when dreaming of building generational wealth.
Sounds great, right?
Want to kick it up a notch?
Make It A Family Tradition To Get Life Insurance With Generational Wealth In Mind
The wealthy don’t shy away from making sure everyone in the family has life insurance, so why should you?
Like I was saying earlier, usually the breadwinner or head of the household will get life insurance.
But, why hinder the potential for your generational wealth building?
If you have a spouse, and children, they all can contribute to the family wealth building here.
For example, if you have two parents, and three children in your family unit you have a huge potential for building your life insurance generational wealth plan.
Let’s say the children in this example are all above the age of 18, and they are working so that they can qualify for more than $100,000 to $300,000 worth of life insurance.
You could get them policies for anywhere between $500,000 to $2,000,000 depending on their income and health.
Now imagine this.
All members of the family who want to contribute to the generational wealth plan of the family each having $500,000 or more life insurance.
If one of the family members were to pass away, the life insurance could be added to the family trust to buy real estate or invest elsewhere.
This would continue with each family member passing on the life insurance’s coverage amount to the family trust.
Rinse, and repeat.
Not only would this jump start your family’s future wealth, but it guarantees your family would never know what poverty is like again.
So what kind of policy can be used for this?
What Life Insurance Policies Works Best For Your Generational Wealth Building?
When building this plan, it is important to keep in mind that budget should come first, at least in the beginning.
Once the trust starts to get momentum, bigger and better plans can be started because the trust can pay for it.
Again depending on your budget, you might start somewhere small here.
Starting With Term Life Insurance
When starting this plan on a budget, the best life insurance plan would be a term life insurance policy.
Since the price monthly would be affordable and easy to maintain in the short term, families can access generational wealth this way.
Here are the positives and negatives of this option starting out:
Term Life Insurance Positives:
- Affordable To Start
- Easy to Apply For
- Can Cover All Family Members For the Cost of One or Two Permanent Options
Term Life Insurance Negative:
- Set For Short Terms Only
- Potential To Miss Death of Family Member
- No Early Pay Off Options
Getting term life insurance policies on all family members is not farfetch, and is not going to kill your initial budget as compared to the second option.
The reason you would want to do this upfront is to have something in place while increasing your earning potential and when you have more power to increase your life insurance budget you can switch to a longer plan by converting your term into a permanent.
Using Permanent Life Insurance
Eventually when your income is high enough or family trust is funded, moving to a permanent life insurance policy for generational wealth will make more sense because of the negatives of term life in regards to this type of planning.
Permanent life insurance enables you to cover your family members and yourself for much longer than a term ever could, ensuring your generational wealth building is accomplished.
No one wants to get life insurance for their wealth building only for it to fall short when they pass away 8 years after their terms ended.
Plus there are awesome ways to use permanent life insurance to make your wealth building easier.
For example, if you have the income and capital, you can pay off each plan within 10-20 years with a permanent life insurance policy and forever have the plans setup, saving you money down the line and having peace of mind knowing that the insurance is paid off.
Permanent Life Insurance Positives
- Locked In Rates For Locked In Coverage
- Guaranteed Payout Whenever Family Member Passes
- Early Pay Off Available
Permanent Life Insurance Negatives
- Higher Cost Monthly Compared To Term
- More Of A Commitment Than Term
If permanent is not an option for you currently, you can always buy a term policy for the express purpose of converting later into permanent coverage.
Just make sure the option is available with the life insurance company you’re purchasing the policy through.
Now that you determined what type of coverage you’re going to get, now is the time to figure out how you’re going to set up the life insurance plans.
How To Maximize Your Life Insurance Plans To Build Generational Wealth
Once one of the family members passes away (which is a part of life, why beat around the bush?) we need to figure out how to make the most of the money.
I eluded to putting it into real estate or index funds which is great, but everyone is different.
Along with those items, we need to set up a trust.
If you haven’t set up a trust yet, please do so, even if you’re not planning on completing this plan of action, a trust is so important because it makes it so your family knows what to do after anyone passes away in the family.
Let’s assume you’re starting the process of making a trust.
Great, now you need to work with a lawyer who understands your goals, I would recommend interviewing different lawyers and telling them what you want out of your trust.
Here are some items to make sure are covered:
- Will you be able to facilitate a trust that is funded by life insurance death benefits from multiple family members?
- Can you assist our family in allocating our funds into appropriate investments?
- What should I expect from this whole process?
- How much do you charge for these extra items?
That should get you started in the right direction.
Now on to investments.
There are four ways to utilize your tax-free life insurance death benefits in generating mostly stable generational wealth.
- Real Estate Investing
- Index Funds Investing
- Stock Dividends Investing
- Building a Business
Real Estate Investing
It isn’t an odd situation to find that most wealthy individuals in California and most of the world have real estate as one of their largest wealth building tools on their belts.
The reason being?
Real estate has tax advantages, inflation busting qualities, and income producing options along with its appreciation abilities.
That’s not to say that real estate investing is easy, in fact it is probably just as hard as building a business or stock dividends investing.
However, with enough money to throw around in your trust, you can afford to hire a great team of real estate minded individuals to assist in growing your wealth.
Imagine replacing your income with real estate investing within a few months after the life insurance death benefit is paid out.
That is possible.
Index Fund Investing
Index Funds are mutual funds designed to match the performance of a market or type of business like real estate or gold mining.
Index investing with life insurance proceeds is the simplest way to gain wealth with little to no maintenance or overview.
It is plug and play.
The returns are nowhere close to what can be achieved with real estate or a successful business, but the returns are better than what can be achieved by buying individual stocks or going with a broker.
Money gained from this strategy is slow to start, but easy to maintain after a few years.
Stock Dividend Investing
An alternative to Index Fund Investing is buying stocks for the sole purpose of gaining a dividend.
A dividend is issued to a shareholder when the company has made more money and don’t need to invest into anything within the business, so to attract more stockholders, they give the money to their stockholders.
Sounds great right?
Definitely, but there are caveats.
First of all, this strategy requires as much as monthly reviews all the way to quarterly and semiannual reviews, or you could lose a lot of money.
For example, if a business is said to go bankrupt and you don’t get out of that investment, you can lose a chunk of your dividend investing portfolio.
However, if you’re an investment savvy kind of person, why not make a fast income with dividend investing?
Building A Business
This is reserved for those who are okay with risk.
Risk averse individuals are cruising for a bruising if they get into business without being okay with risk, or having no business experience.
However, if this doesn’t apply to you, get ready.
Most businesses need capital to start, and to stay successful, having readily available cash on hand can make or break the business.
Lucky for you, you have a huge reserve of liquid cash that you can use without having to pay it back.
My recommendation is start a business after reviewing what type of business fits your competency as well as what the market wants.
Again, if this is too much for you to handle, stick with real estate or index fund investing.
Common Questions About Life Insurance Death Benefits
Here are the most common questions people ask when receiving their death benefit as a beneficiary.
Do I have to pay any taxes on the money?
No, you don’t.
Isn’t that great? The federal estate tax is only applicable to 11.58 million dollars within an estate.
If you have life insurance that exceeds that with your net worth included then you’re going to pay taxes on anything over that amount.
If that is the case, getting an irrevocable life insurance trust done by a competent lawyer will avoid this issue.
I can really use the money for whatever I want?
I once filled out a claim for a daughter of a policyholder, and the daughter went to Las Vegas with the money.
I don’t know if she hit it big, but I can say the IRS or the life insurance company didn’t really care to follow up with her on how she spent it.
That is the case with all life insurance payouts.
As long as you’re the correct beneficiary or a trustee on the trust it was given to, you’re free to use it as you please.
I, of course, recommend building wealth instead of blowing it on the slot machines in Vegas.
How long does it take to get paid out on the death benefit?
Most companies have a quick procedure, and don’t like wasting money not paying out people they owe.
However, a lot can happen to postpone the payout for the death benefit.
The biggest slowdown in payouts comes from this rule:
The Two Year Incontestability Period
If you passed away before the 2nd year of your coverage, your beneficiaries are due for a long review of your death.
Even if it was simple like being killed in a car accident.
The insurance company has to double check that it wasn’t fraudulent, that you’re not still alive, and that it wasn’t suicide.
This takes time.
If, on the other hand, it was after the 2nd year, everything is covered, and very few companies will stick out two to four weeks trying to find something that isn’t there.
In general, the review time within the Incontestability Period is anywhere from two months to as long as 12 months depending on a lot of factors.
After the Period, claims can be processed as quick as two weeks or as long as one month.
I once had a client whose policy didn’t pay out for six months because she died on the California Metrolink.
If you didn’t know, there’s a lot of bureaucracy with anything involving a government body.
Plus she passed in her sleep, so they wanted to make sure it wasn’t a murder since she was under the age of 60 and in great health.