For experienced investors that are savvy in the Stock Market, achieving great return on their investment sometimes feel effortless. For this reason this may be their preferred strategy to build wealth for themselves and pass on a legacy to their loved ones.

Investors who invest in Mutual Funds that generate great returns on their investments, usually feel comfortable that this is a safe and proven way to grow their wealth to supplement their retirement income and leave a legacy for their loved ones.

In both cases however, economic and market conditions can see their wealth decline significantly in a short period of time. And depending on the stage they are in their lives, time may be against them to recuperate unexpected loss. 

Moreover, there are other factors such as attorney fees and taxes that can significantly affect the amount of money that is left in their estate for their loved ones  after they pass away.

But what happens if you have Life Insurance when it’s your time to become an angel?

There are two types of life insurance:

  • Term Insurance
  • Permanent Insurance

What is Term Life Insurance?

Term Life Insurance is similar to leasing a home. For the term of the lease, you have to pay rent and you have access to all the amenities and comfort that the home offers. However, at the end of the leasing term, you have no rent obligation but you have no claim to or benefits from the home either.

For the duration of a Term Life Insurance, you have to pay a premium and should you pass away during the term of the insurance, your loved ones are entitled to the death benefit. But if you pass away even a day after the term ends, your loved ones will get nothing from the insurance.

What is Permanent Life Insurance?

Permanent Life Insurance is similar to owning a home. You may purchase the home cash or you may take a mortgage on the home for 20, 25 or 30 years, and pay off the mortgage for a period of time. As you pay the mortgage, you own more and more of the home. But once your mortgage is paid off you fully own the home for life. 

For Permanent Life Insurance, you may choose to pay the premium cash or you may choose to pay it for a period of time. However, despite the payment period that you choose, you will have coverage for the rest of your life.

In fact, a Permanent Life Insurance is sometimes more flexible than a mortgage because you can opt to pay the premium for life in an effort to make it more affordable. And even if your life span is cut shorter than expected, your loved ones will get the full death benefit. 

Why Is Life Insurance More Legacy Friendly Than Stocks And Mutual Funds?

In the event of death, whether the deceased had term or permanent life insurance, it doesn’t matter, the full death benefit is paid to the beneficiary tax-free! The death benefit bypasses your estate and all the death related fees and taxes such as probate tax.

Let’s look at the example below for better understanding.

Consider a healthy 50-year old non-smoker who has $500K in the stock market or a mutual fund, who doesn’t need to access the funds for the next 20 years, and has the following 2 options:

Option 1: Leave the money where it is

  • Average growth is 6%
  • Investment period 20 years

Option 2: Purchase a Whole Life Policy

  • A 20-year Whole Life
  • Death benefit: $1.5M
  • Premium: $30K per year

Continue in the Market

20-pay Whole Life Policy

  • About $1.6M in 20 years
  • High Liquidity
  • Taxable upon death
  • Subject to market risk
  • Caught up in estate at death
  • Not Creditor Protected
  • Subject attorney fees
  • About $1M Cash Value
  • Not Liquid (could access 90% of cash value)
  • $1.5M Death Benefit
  • Guaranteed to never lose money
  • Dividend option
  • Tax-free Death Benefit
  • Creditor Protected

As you can see from the table above, purchasing a 20-pay Whole Life Insurance policy has way more benefits than leaving the money in the market for the next 20 years. Plus historically it has shown that the market always falls significantly at least once over a 20-year period.

With this knowledge, which would you bet your loved ones’ legacy on? The Stock Market or a Mutual Fund or on a Whole Life Insurance Policy?

I’ll leave that for you to answer?😁