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It’s estimated that only 51% of Americans have invested in life insurance policies, but not doing so can be a missed opportunity for more reasons than just providing for loved ones after your death. Ryan Smith, vice president of Atlanta Life Insurance, explained on Yahoo Finance’s Financial Freestyle podcast that life insurance is worth the investment, especially when it comes to building generational wealth and paying for lifetime milestones. (Watch the full episode above; listen-only below.)
People often overestimate the cost of life insurance. Approximately 72% of people think a life insurance policy costs more than it actually does. While premiums vary depending on the policy’s conditions and the policyholder’s health and life expectancy, Smith explained that, in some cases, it’s only “the cost of one date night per month … or one pair of shoes.”
And those relatively small premiums add up. “Every time you’re paying a premium, you’re creating value that can earn an interest rate,” Smith explained. “And there are a number of ways this interest rate can be calculated. If it’s whole life, it’s typically one rate. If it’s indexed, it can often be market-driven,” Smith explained.
Regardless of the interest rate your life insurance policy earns, it can ultimately become a valuable asset that can be used for other purposes, depending on the terms.
“As you accumulate that cash value over time, that is now your asset to do things with,” Smith said. “You can pull from that and repurpose those dollars for other things … everything from your death benefit to what I’ll call a savings vehicle that’s earning a meaningful rate of return and also has safety and grows in a tax-advantaged manner.”
Read more: What is life insurance and how does it work?
Smith explained that, when used properly, a life insurance policy can be leveraged to help pay for milestone moments, like education or a wedding. It could even help in starting a business.
Life insurance can also build generational wealth. Starting a life insurance policy for your child while they’re young can set them up for a head start on their wealth by the time they turn 18.
“If you think about this illustratively, for $100 a month, when your child turns 18, they could have a cash value of $300,000,” Smith said. “That $300,000 can be used to fund education, it could fund their business idea, it can do a variety of things, and all while still having that death benefit in place. So you’re ensuring generational wealth transfer and the continuity of wealth through the future generations to come.”
“If you have the opportunity to give your family tax-free seven-figure sums,” he said, “that would be life-changing across generations.”
Every Monday, Financial Freestyle host Ross Mac talks with key guests to discuss their wealth-building journeys and what it takes to build a lasting financial footprint. You can find more episodes on our video hub or watch on your preferred streaming service.
