Cash-value life insurance and identity theft
By Jeffrey Reeves MA
Identity theft has been in the news and on the minds of Americans for the past several years.
- Dozens of new enterprises have sprung up to protect Americans from the onslaught of con artists and criminals that have adopted identity theft as their crime of choice.
- Businesses that offer shredding services are thriving, and stores that sell shredding devices are seeing record sales.
- Computer businesses that offer to secure electronic IDs and protect online passwords are growing.
- Online banking and stock trading sites have installed extra security to protect the accounts and information of their users.
- Credit card monitoring is becoming a necessary service for credit card grantors to offer their members.
- Americans are paying more attention to how they dispose of even the most innocuous U.S. postal mail.
A safe haven
Life insurance companies have protected the identity of their clients for over a century with amazing consistency. In particular, the cash values that accumulate in life insurance policies are especially secure. There are several reasons for this:
- Life insurance policies are very private legal contracts between two parties and require no reporting or only minimal reporting to credit agencies and tax authorities.
- The policy owners directly control access to and use of the cash values, dividend or investment options, beneficiary designations, and other policy changes in life insurance contracts that accumulate cash value.
- The insurance company acts as an administrator and guarantor of certain rights and privileges for the policy owner but is unable unilaterally to affect the elements of the contract reserved to the owner.
- All transactions occur between the owner, the insurer, and the owner's agent. There are no weak links in this chain unless the agent is dishonest -- a very rare occurrence in my experience -- and even then, insurance companies and state insurance departments have checks in place to reduce that risk even further.
Cash-value life insurance provides Americans a secure repository for their money and offers many other benefits. The Scrooge and Marner Bank tale outlines some of them further as does the following twelve benefits called...
The dazzling dozen
Twelve reasons why you and any money smart person should choose to build a personal economy that puts cash-value life insurance at its foundation; that protects your identity and your money in good times and bad:
1. You can get to the money in your "bank"1 whenever you want it or need it -- no penalties, no waiting, no taxes.2
2. The government, your employer, or any other outsiders are completely unaware that you have such a policy and have nothing to say about how you operate your bank.
3. Your bank is protected from creditors and lawsuits.3
4. You can borrow against your bank for any reason. You don't have to qualify in any way. You don't have to report it to anyone. You can pay it back on a schedule you choose.
5. When you do borrow from your bank, the money in your bank keeps growing as if you hadn't borrowed a cent -- your money does double duty.4
6. Your bank allows you to recover the money you pay to purchase cars, household furnishings, vacations and other big ticket items or to fund education, business start-ups or any other costly expense, and deposit both the principal and interest you recover right back into your bank. You and your insurance company are the only parties that know of such transactions.
7. Your bank allows you to repay the interest you would normally pay to credit card companies, banks and other credit grantors into your bank where it compounds for your benefit, and no one else knows about it.
8. Your bank allows you to pre-pay the cost of future health and long-term care so the money you need as you age is unencumbered in your bank when you need it most.
9. Your bank can fund an inflation-protected tax-free income that you do not have to work for, you don't have to report to anyone, and you can't outlive.
10. You can use the money in your bank when an unforeseen life event throws you off track -- and that happens to everyone at some time or another -- without having to worry about filling out loan applications and exposing your financial life to strangers.
11. Your bank lets you grow your wealth tax-free every year -- no sliding backward, no worries about stock market crashes or real estate market bubbles, just peace of mind about your money.
12. Your bank serves you without compromise while you are alive and allows you to pay forward -- tax free and to anyone you choose -- your legacy of wealth and wisdom.
Now, let's make it a baker's dozen:
13. Your life insurance policy's death benefit remains in your estate but can bypass probate court and the IRS for both income and estate taxes. Of course, you need a competent insurance and financial advisor, legal advisor, and tax advisor to assure that all of the rules are followed to allow this -- but it's relatively easy and inexpensive.
1The term "bank" is used here as a generic term meaning a depository for money that you control using a cash value life insurance policy as the depository. It does not refer to commercial banks or banking processes.
2Universal life insurance and variable life insurance policies impose surrender charges and make cash values less accessible than participating whole life policies.
3This document does not provide legal advice. Protections are not the same in every state and may not be available in some states. Consult an attorney about the laws in your state.
4This is only true for participating whole life policies. UL and VUL policies do not include this ability.
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