This article is an adapted transcript of the video available on our LIFE180 YouTube channel.

Whole life insurance is often misunderstood as merely a way to protect your family in the event of your passing. However, it offers far more than just death benefits. In fact, whole life insurance can serve as a versatile financial tool, helping you build and preserve wealth throughout your lifetime. In this article, we will explore seven strategies for creating wealth using whole life insurance.

This article will cover seven of the most commonly used and powerful strategies for leveraging whole life insurance to enhance various aspects of your financial life. These methods focus on how to make the most of your policy while you're still living, maximizing its potential to improve your overall financial situation.

Leverage Cash Value As An Investment

The first strategy is leveraging the cash value of a whole life insurance policy as an investment tool. One important principle to keep in mind is that we shouldn't save money simply for the sake of saving; instead, we save with the purpose of investing. When you accumulate savings within a whole life insurance policy, the cash value steadily increases over time.

As that cash value grows, it can be used as collateral, allowing you to establish a line of credit. This credit can then be used to invest in opportunities such as real estate, business ventures, or private lending.

So, those are my three preferred areas for wealth creation: real estate, business ventures, and private lending. Utilizing the cash value in your policy to invest in these areas is one of the most powerful ways to build wealth over time.

Whole Life Insurance Provides Tax Free Growth

The second way whole life insurance can help you build wealth is through tax-free growth.

One of the most significant obstacles to financial growth, which many people may not fully realize, is taxes. Take, for example, a high-yield savings account. While these accounts can seem appealing, I frequently hear people suggest putting their money into such accounts as a simple solution. However, the impact of taxes on these returns often goes unnoticed.

For instance, some whole life insurance policies are currently offering dividends between 5.2% and 6%. But, when you factor in costs like mortality charges and other fees, the actual net return typically drops to around 4.2% to 4.7%. So, if you're considering putting your money into a high-yield savings account that offers 5%, on the surface, it seems like a better option since the 5% yield appears to outperform the net return of the insurance policy.

There are a few key factors to consider in this comparison. First, the whole life insurance dividend rate, typically between 5.2% and 6%, tends to be more predictable. In fact, 5.2% is the lowest dividend rate seen in the past 80 years. By contrast, the current 5% offered by high-yield savings accounts is the highest in decades. Additionally, the growth in a whole life policy is tax-free, while the growth in a savings account is taxable.

For example, if you have $100,000 in a savings account earning 5%, that's $5,000 in interest, but you'll receive a tax bill for that $5,000. On the other hand, if the whole life policy grows at 4.7%, you’ll earn $4,700, but you won’t owe taxes on that amount.

Some may question why they would opt for the lower $4,700 over the $5,000, but when you factor in the taxes on the $5,000, the difference becomes clear. Your final take-home amount could be lower with the taxable savings account, depending on your tax rate, which is crucial to consider.

Whole Life Insurance Provides Safe & Guaranteed Returns

A third way that whole life insurance helps in building wealth is by providing safe and guaranteed returns. Few financial products in the world can even claim to offer guarantees. Most traditional investments inherently involve some degree of risk, which is why comparing whole life insurance to other investment options is often misleading. They simply don’t share the same risk profile.

Whole life insurance and annuities are among the few financial products that can legitimately offer guarantees. When comparing a product that provides a guaranteed return to more speculative investments, it's clear that the guaranteed option will not have the same upside potential. However, the trade-off is the certainty and security that come with a guaranteed return, which appeals to those looking for stability in their financial strategy.

In fact, a product with guaranteed returns isn't designed to help you achieve extraordinary wealth by taking significant risks. Its purpose in your financial life is to provide stability and security, not to chase high returns through speculative investments.

Now, I'm not suggesting that you shouldn't take risks or make investments in areas like real estate, business, private lending, or the stock market. Those are important avenues for wealth creation. However, it's essential to first establish a solid financial structure.

Building a foundation of financial stability (one that comes with guarantees and predictable growth) is key. The stronger and more secure your foundation, the greater your ability to take calculated risks and pursue wealth-building opportunities outside of it.

You’re not going to amass significant wealth solely within your whole life insurance policy. While it will grow, the pace will be slower compared to riskier investments. However, the key is that having the policy in place enhances your ability to take more calculated risks outside of it. The security provided by the policy allows you to confidently pursue other wealth-building opportunities, knowing you have a stable foundation to rely on.

This brings me to the fourth way whole life insurance helps build wealth: by serving as a source of tax-free income during retirement and acting as a volatility buffer. By tapping into your policy in retirement, you can access funds without triggering taxes, and it can also help protect your portfolio from market downturns when other investments are volatile.

Whole Life Insurance Is A Great Retirement Planning Asset

Tom Wall, a PhD in retirement income and author of Permission to Spend, emphasizes the value of using whole life insurance as a volatility buffer. This ties back to the concept I just mentioned. While whole life insurance may not offer the most exciting returns (more akin to bond-like returns over time) it plays a crucial role in enhancing the performance of your other assets.

By providing stability, the policy allows you to weather market fluctuations more effectively, ultimately improving the overall efficiency of your financial portfolio.

Having a whole life insurance policy in retirement provides a significant advantage during years of negative market performance, which typically occur around 30% of the time. Instead of drawing from underperforming investment accounts, you can tap into the cash value of your whole life insurance policy for tax-free income. This approach prevents you from depleting your other investments during downturns, helping to preserve and extend their value over time.

It's widely understood that the worst thing you can do is withdraw from an investment account during a period of negative performance. Selling off assets that have just lost value locks in those losses, which can have a compounding effect and significantly hinder the account's ability to recover in the future

By using whole life insurance as a volatility buffer, you avoid liquidating negatively performing assets during down years. Instead, you can rely on your whole life policy, giving your other investments the time they need to recover.

While whole life insurance may not deliver the most glamorous returns, it can help your other investments perform 25% to 50% better over the long term. This creates wealth, even if the impact isn't immediately visible. This is why having a solid financial structure is so essential.

Whole Life Insurance Helps With Estate Planning & Wealth Transfer

The fifth way to create wealth using whole life insurance is through estate planning and wealth transfer.

This is the most obvious use of whole life insurance and the one most people associate with it. However, it’s essential to address the importance of using whole life insurance as a vehicle for wealth transfer when discussing this topic.

Many people argue that they don’t need whole life insurance for their entire life, believing they can buy term insurance and invest the difference. They assume that by the time they reach 65, they’ll have accumulated enough wealth to self-insure.

The reality is, you can’t truly self-insure without sacrificing your ability to spend in retirement. While you could, in theory, spend down to zero and leave nothing for the next generation, I believe it’s our responsibility to pass on more than what we had. Viewing it from this perspective, whole life insurance becomes a critical tool for leaving a legacy and ensuring financial security for future generations.

What I love about whole life insurance is that it’s not just about passing on an inheritance, it’s about passing on a legacy of financial principles. It allows us to instill values like responsible saving, charitable giving, and community support.

With the right financial systems in place, we can empower our families to continue growing their impact on the world, ensuring that the habits and principles we stand for are carried forward.

This concept is central to What Would the Rockefellers Do?, a book for which I wrote the foreword alongside Garrett Gunderson. One key distinction between families like the Rockefellers and others, such as the Vanderbilts, is their ability to think long-term.

The Rockefellers understood the power of time and compounding, and this long-term vision was crucial to their sustained wealth and influence across generations. When we can transfer wealth from one generation to the next in the most tax-efficient manner, it allows us to maximize and compound that growth over time.

By implementing principles, systems, and structures such as trusts, we can create a robust framework for wealth transfer. While I may be expanding on this topic more than initially planned, it’s important to emphasize that these strategies position our families to succeed and thrive across generations. In fact, there is no better asset for wealth transfer, particularly in a tax-advantaged and often tax-free manner, than a whole life insurance policy.

Whole Life Insurance Can Protect You From Financial Emergencies

The sixth way whole life insurance can facilitate wealth creation is by providing protection against financial emergencies. The cash value accumulated in your whole life insurance policy can effectively serve as an emergency fund, offering you access to funds when unexpected situations arise.

Many people believe that a traditional savings account is the best place for an emergency fund. However, true emergencies extend beyond typical expenses, such as fixing an air conditioning unit or repairing a car. Real emergencies involve significant life events, such as becoming critically, chronically, or terminally ill, which can have profound financial implications.

For instance, losing the ability to perform two of the six activities of daily living, receiving a diagnosis of Alzheimer’s, or facing a terminal illness like cancer can lead to overwhelming financial burdens.

Having the ability to access a death benefit while you're still alive allows you to manage these challenges, covering bills, maintaining your dignity, and paying for in-home care. Ultimately, it’s about having options and maintaining control over your circumstances.

Having access to tax-free funds to manage real-life emergencies can protect you from making poor financial decisions. It helps you avoid resorting to high-interest, toxic debt, which often comes with additional fees and costs.

I've seen interest rates soaring to 27%, 28%, or even 30% on leveraged loans used for essential expenses like car repairs or air conditioning units. By utilizing your whole life insurance policy, you can sidestep these burdensome financial traps. So by having an emergency fund inside of a whole life insurance policy, it helps in those areas.

Whole Life Insurance Increases Your Financial Efficiency

This brings us to the seventh and final, yet perhaps most important, aspect of a whole life insurance policy: its ability to enhance your overall financial efficiency. This is a critical factor in building wealth and maximizing the potential of your financial resources.

Financial efficiency, in my view, is about making your dollars work harder and getting more value from each one. As you navigate life, it's important to recognize that markets will shift over time. These fluctuations can impact your financial strategies, but by focusing on efficiency, you can adapt and continue to maximize the potential of your resources.

For example, consider interest rates. They fluctuate significantly over time, rising and falling in cycles. The federal funds rate peaked at 19% in the 1980s and has since dropped to as low as 0%. This illustrates the dramatic shifts that can occur in the market, although this representation is not to scale.

In an environment of rising interest rates, access to traditional bank lending often tightens. Banks become more restrictive, making it harder to borrow, while the cost of money increases as interest rates climb. This is where the power of whole life insurance comes into play.

Instead of relying on banks, you can tap into the cash value of your whole life policy, providing greater efficiency and access to capital. When banks are lending less and imposing more restrictions, your policy offers a flexible source of funds without the typical hurdles. 

Additionally, during periods of tight lending, asset prices tend to decrease, creating more opportunities for those with readily available capital. This allows you to achieve better returns with reduced risk, highlighting the true value of having access to your policy’s cash value.

Conversely, when we examine periods of declining interest rates, such as from 1980 to 2010, we can leverage the opportunity for arbitrage. In a reducing interest rate environment, we can capitalize on the difference between the lower rates at which we can borrow and the higher returns on our whole life insurance cash value, effectively enhancing our wealth-building potential.

For instance, if I can demonstrate how to leverage your policy effectively, you could earn a 6% return from dividends within the policy while simultaneously using a cash value line of credit. By collateralizing your cash value with a bank to secure a line of credit at an interest rate of 3% to 5%, you can create a positive arbitrage spread between the 5% cost of the credit and the 6% dividend return from

This strategy provides a way to create wealth by leveraging your money more effectively. For example, if interest rates rise and banks are lending at 8%, but you can access funds from your whole life policy at 6%, you benefit from a 2% efficiency. This difference translates into significant savings, and any time you save money, you are effectively creating wealth.

This is where I often find myself at odds with wealth managers who insist that you must chase high rates of return. In reality, it's more important to operate efficiently and structure your financial life to save money effectively. Remember, every penny saved is a penny earned, and this principle has stood the test of time.

This illustrates the ability to control what I would call the "cost of capital." By accessing funds at 6% from your whole life policy instead of taking out an 8% bank loan, you effectively manage your costs. In the future, this strategy remains viable. As rates rise, you can continue to leverage your whole life insurance rather than relying on a bank.

In decreasing interest rate environments, we want to leverage the bank instead of relying solely on our whole life policy. In this scenario, we can utilize a cash value line of credit from the bank, opting for a collateral assignment rather than the policy loan provision.

This approach allows us to secure a lower interest rate while building positive arbitrage into the loan. Subsequently, we can leverage these funds to invest in various opportunities, as previously discussed.

By returning to our first strategy, we can utilize the cash value for other investments. With funds in a whole life policy, we can outperform traditional bank savings rates, benefiting from tax-free growth over the long term. Additionally, we'll enjoy safe and guaranteed returns that closely resemble bond-like returns, providing both stability and reliability.

This approach offers savings-like liquidity and money market-like accessibility, along with guaranteed returns that resemble those of bonds. It also provides a volatility buffer for retirement income, enabling our other assets and investments to perform 25% to 50% better. Moreover, it presents the most tax-efficient method for transferring wealth to the next generation, aligning with the principles of generational wealth that the Rockefellers exemplified.

I have much more content on this topic coming soon, so if you're interested in learning more, be sure to subscribe to our LIFE180 YouTube channel and hit the notification bell. This way, you'll be alerted every time I release a new video.

Everyone needs an emergency fund; it's the foundation of your financial life. Without protection against financial emergencies, true security is unattainable. If you're not financially secure, you aren't genuinely an investor, you're merely a speculator. And in the long run, speculators often face significant losses.

Avoid speculation; instead, focus on being an investor. Establish a solid financial system and structure. Ultimately, as I’ve demonstrated, whole life insurance can enhance your overall financial efficiency, helping you achieve your desired goals with greater predictability. That’s the essence of sound financial planning.

I hope you found this information valuable and that it resonates with you. If you’d like to speak with someone from the LIFE180 team, please click the link below to schedule a clarity call with a LIFE180 representative.

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Until next time, have a blessed, inspirational day.