Many businesses have an emergency fund for roof repairs, a new transmission for the delivery truck, the list goes on. Often, these funds are kept in a savings account or a money market account. The business owner insists that these funds be readily accessible. The money in these savings accounts are safe and liquid… and making less than half a percent most likely. Being safe and liquid comes at cost! But does it have to be this way?
Enter participating whole life insurance, and the solution: A single premium whole life insurance policy can be structured in a way that provides over 97% of the single premium in cash value at the end of year one. Whole life has no surrender charges, so the business owner has access to 100% of the cash value. By the third year it is likely that the cash value will exceed the premium paid.
Whole life policies guarantee cash values. They also guarantee that cash values will grow at a rate that far exceeds money market and savings account rates today.
Policyholder dividends are available with participating whole life insurance policies, though not guaranteed. But when dividends are paid they can actually increase the guaranteed cash value and death benefit. When is the last time you have seen a financial tool that actually paid more than initially guaranteed? The icing on the cake is that the money market/savings account funds used to purchase the participating whole life policy now have a death benefit.
If an emergency arises there is cash available with a participating whole life policy. If the business owner passes away there is a tax-free death benefit (which may be much larger than the initial emergency fund in the savings account.) These death benefit funds can be used to continue operating the business and pay employees, or pay for other emergencies.
EXAMPLE: A 45 year old business owner has $60,000 in a money market account as a reserve fund and for emergencies. Purchasing a participating whole life policy for $50,000 (structured for maximum early cash value) on day one his death benefit is $180,000. Cash value at the end of year one is almost $48,000… of which he has access to all of it. At year two he has more than $49,000 in cash value. Year three’s cash value is over $51,000, which is more than a money market or savings account would have paid at that point. In 10 years the cash value is over $66,000, plus the policy still has a death benefit of over $180,000.