Cash Value Life Insurance is a Valuable Portfolio Asset

Cash Value Life Insurance is a Valuable Portfolio Asset

by | Sep 15, 2023 | Investments, Life Insurance, Retirement, Tax-Free, Wealth Management

She Did It! The Strategy Works!

Ten years ago, I did a deep dive into the value of owning cash value life insurance in a lifetime wealth portfolio.

After months of research, I took the plunge and started my first policy. So did several of my clients, including a young lady named Rachel.

Now, 10 years later, Rachel has enough cash value inside her policy to take a loan “against” her cash value. That loan was her down payment on a condo near the Winter Park Colorado Ski Resort.

Cash Value Life Insurance
Rachel’s view of the mountains from her new condo!

Research This Asset

As a CPA with a career in accounting, tax, and corporate financial analysis, I did a ton of research to educate myself about cash value life insurance as an asset compared to all other asset classes available in the financial services industry.

I will say this, if cash value life insurance policies are not properly structured for your unique financial goals, purposes, and timelines, it can be a disastrous asset in your portfolio.

Unfortunately, I have seen too many policies that were either poorly designed or were product sales made by unknowing agents.

Ongoing Education in Wealth Management

This industry is not for the faint of heart. There is SO MUCH to learn, especially when you are a dually licensed advisor. Dually licensed means you are licensed to practice on both sides of the financial services equation: investments and insurance. It allows me to work with my clients to design and develop the very best lifetime wealth and legacy strategies using financial tools on both sides of the equation.

The investment and insurance industries are two competing worlds in the finance industry, and they are constantly changing. I bring them together under one umbrella for the benefit of my clients. Strongly consider who you trust with your hard-earned money.

Cash Value Life Insurance is a Lifetime Asset

People often ask me, “Judy, what is the best life insurance to own?” My answer is, “Life insurance that will be in force on the day you die.”

Term life insurance only stays in force for a pre-determined number of years. It is a lot less expensive because the chance of paying out a death claim is less likely than with a permanent policy. In fact, 99% of all term policies never pay a death benefit.

We are talking about permanent life insurance policies here. If properly structured, funded, and not surrendered, it will be in force on the day you die.

And that’s not all! There are at least a dozen additional benefits that go along with properly structured cash value life insurance, most of which are not available with other asset classes.

Life Insurance? You’ve Got to be Kidding Me! I Don’t Need That!

That’s a pretty common reaction, wouldn’t you agree?

Back in the day, Walt Disney, J.C. Penney, Ray Kroc, and Doris Christopher all took loans against the cash value inside their permanent life insurance policies to either start their companies or meet massive cash flow challenges in their companies.

Doris Christopher: Founder of Pampered Chef

Nelson Nash shared the concept of using permanent cash value life insurance as an asset class when in 1980 he faced a $500,000 medical bill resulting from his 5-week-old granddaughter’s cancer diagnosis and treatment.

Here is a direct quote from his book:

I spent many months from 3:00am – 4:00am in the kneeling position praying, “Lord, please, show me a way out of this financial nightmare that I have created for myself.” The answer came back about like a baseball bat across the eyes. “You are standing in the midst of everything it takes to get out – but you don’t see it because you look at things like everyone else. You can get to money, during these awful times, at 5% to 8% from three different life insurance companies through policies that you own. The only thing that limits how much you can get to is the same thing they tell you at the bank when you ask them how big of a check can you write – how much have you put in? (Becoming Your Own Banker, Fifth Edition, by R. Nelson Nash, p. 13)

I love Tom Hegna’s approach. He says, “A lot of people think life insurance has nothing to do with retirement, but I want to show you how life insurance has EVERYTHING to do with retirement.”

Since then, some insurance companies realized they could be sitting on a gold mine if they designed and developed permanent policies that not only provided a tax-free death benefit, but also provided many additional benefits while you are still alive!

Cash Value Life Insurance is a Collateral Asset That Can Be Leveraged

Rachel took advantage of some of those benefits when she took a tax-free loan “against” the cash value inside her policy. Because of the way her policy is structured, the entire cash value inside her policy continues to grow tax-deferred, including the amount of the loan she took against it.

The loan is considered a “lien” against the death benefit. Should a policy owner pass away with outstanding loans, the insurance company first pays off the loans, and then distributes the remaining death benefit tax-free to the beneficiaries.

There are no repayment terms on the loan. Rachel will choose her own repayment terms. There are no penalties.

There is loan interest that accrues. However, if the loan is to invest for the purpose of profit, the interest on the loan is tax-deductible.

Creates Velocity of Money

Cash Value Life Insurance

Here’s what’s happening inside Rachel’s life insurance policy:

  • Her entire cash value continues growing tax-deferred on the uninterrupted compound growth curve
  • She continues making contributions to the policy which increases her cash value
  • If the loan is paid back, her collateral capacity increases
  • Her death benefit continues growing

Rinse and repeat during your accumulation years and you’ve created that velocity of money many people hear about yet don’t know how to execute!

The beauty of this financial tool is that Rachel did not lose the liquidity in her other assets. She did not deplete cash or an investment to move it to equity.

Cash Value Life Insurance During Retirement Years

When Rachel reaches her decumulation years, she will have significant cash value inside her policy. (That includes in any other policies she starts along the way). At that time, she can take tax-free loans against the cash value inside her policies and not worry about paying the loans back.

She will have the luxury of “living off her death benefit” while she is still alive! Because they are loans, they are not reported on Form 1040. Therefore, they do not increase taxable income or impact Social Security Benefits taxation and Medicare Premium means testing (IRMAA).

Cash value life insurance can be a valuable lifetime portfolio asset in a comprehensive, all-inclusive, balanced approach to achieving tax-free retirement.

You may be able start one of these policies for your 5-day-old child or grandchild all the way up until you are in your 70’s. It’s no wonder the politicians and the wealthy in our country own them! You can too! Let me show you how!


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