How Money Works Part II
Anne | 4/1/2009, 1:08 p.m.
How to create wealth through an insurance policy
Now more than ever before, we are all looking for alternate ways to create wealth for ourselves, our families, and build a legacy for our children. We all want the best rate of return on our money. Most of us put our money into a savings plan. Bank interest rates are less than one percent. Are you familiar with the rule of 72? In finance, the rule of 72 is a simple compound interest formula for estimating an investment's doubling time. You divide 72 by your current interest rate and you get the number of years it will take your money to double.
For example, if you are getting a two percent interest rate on your savings account at your bank (yes I know, I€m using two percent just as an example) and you divide 72 by 2, it will take 36 years for your money to double. Wow!! So, if you put away $1000 today and never deposit another dime, it will be the year 2045 before your initial $1000 investment doubles to $2000. Utterly insulting isn€t it? In the meanwhile, the banks are making money off of your money! How? They charge much higher interest rates on credit cards and loans to us consumers.
If you have a nine percent interest rate on your bank credit card, your initial $1000 deposit, will double every eight years for the bank. Remember the rule of 72; 72 divided by nine is eight. So let€s do the math. Eight years from now the year 2017, the bank has made their first $1000 off of your money; another eight years, the year 2025, they have made $4000 off of your money. Are you getting the picture yet? By the year 2045, the bank has made approximately $20,000 off of your money and you only get an additional $1000 through your 2 percent interest rate in your savings account. Net profit for the bank: $18,000. Upsetting isn€t it?
So, how can you get a better rate of return on your money? It€s definitely not in a bank savings account, money market, or CD. Now does this mean you do not need a savings account at all? No, you do. You need a savings account for short term goals and emergencies. But, there is a better way to create long-term wealth. It can be done through the right insurance policy.
Most common beliefs about life insurance is that it is meant to sustain the life risks of adults; it is meant to replace income in case of the death of spouse, parent, or guardian; it is not necessarily for children; young and healthy children can get life insurance later on in life. These common beliefs today simply are not true. The newer life insurance is about preparing a safe and sound financial future. These plans can be used as a means of setting aside money for the future; are moderately priced to fit any budget, and provides what are called €Living Benefits€.
Child life insurance is perfect for planning for the future because of the cash value the plan would accumulate. The cash grows tax deferred and the proceeds are usually tax exempt. The cash in the policy can be accessed to pay for college; purchase a home; start a business; and even supplement or fully fund retirement. The cash value in the new plans can be accessed for anything you need it for without having to pay it back and will not reduce the face value of the policy.
Let€s look at the example below:
For a child policy costing $25 per month (if attained at birth) by age 21 your child could have $10K or more in the policy; at age 45 they could have over $81K in the policy; and at age 65 they could have over $485K to use towards retirement. These figures are based on current market trends and are not a guarantee of what the actual value will be. Attainable policy cash values vary depending on age when the policy is obtained and whether or not you fully utilize the investment tools of the policy. Signing up for a policy for them now guarantees their insurability tomorrow. Later in life, if a child develops a chronic disease like juvenile diabetes, sickle cell, or cancer, life insurance can be almost impossible to obtain. The new plans also provide €Living Benefits€. In case of a chronic, critical, or terminal illness, all or part of the value of the policy can be used to pay for care and medical expenses
These types of policies are a great way for us adults to build our financial futures also. With the stock market still in turmoil, most of us are losing a significant amount of money in our 401(k) plans. These plans can build a safe retirement for us as well.
For questions or comments about this article, contact Anne-Jennell Burke of Burke Financial Services at 301-324-1346, by email at BurkeFinancial@gmail.com, website: www.Burke1Enterprises.com