POLICE Magazine

JUL 2017

Magazine for police and law enforcement

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48 POLICE JULY 2017 Cop Finance • Funding the start-up of my own home business Why would I want to use policy loans instead of cash out of a bank savings ac- count or a bank loan? Privacy, flexible payback terms, and because of how com- pounding works. When you withdraw from a savings ac- count, you lower the balance, and thus the amount of interest you earn. With a whole life policy, you don't actually with- draw cash from the policy. You take a loan from the insurance company against the policy's cash value. You are still paid a dividend on the full cash value, even while your loan is outstanding. You never interrupt the com- pounding cycle. With a bank loan, failure to pay results in damaged credit and a possible judg- ment or asset seizure that could affect your heirs. If you don't pay back a policy loan, there's no damage to your credit while you're alive, and your heirs still get a death benefit, just minus the amount of the loan and interest, as long as you kept your premiums current. To be clear, utilizing life insurance as discussed in this article is not an invest- ment strategy, where you risk money for high returns. is is a savings strat- egy, with very conservative returns. We're talking about secure savings, long-term growth of capital, and keeping your fi- nancial information private. More than a dreaded expense or a necessary evil, a well-designed whole life policy is a smart choice for some cops. Did you get value from this? Do you have questions? You can email me: adam@copfinance.com and I will per- sonally respond. It's my mission to help my law enforcement family master their money and enjoy life more. Adam Doran is a 15-year veteran police officer from the Kansas City area. You can connect with him through his Web- site, www.copfinance.com, or e-mail him directly at adam@copfinance.com. annual dividend, usually around 5% tax- free, helping to hedge inflation. If you use your annual dividends to purchase additional life insurance, your increasing death benefit is another hedge against inflation. Your growing cash value is not a taxable gain, even when the cash value exceeds how much you've paid in premiums, which usually occurs around year seven or eight in the life of the poli- cy. If you decide to take your dividends as cash, they're also tax-free up to the amount of premiums you've paid into the policy. ability to pay obligations to policyholders. Unlike a bank, an insurance company must first have the funds on hand before issuing a (policy) loan. is emphasis on actual cash reserves gives you confidence your money is secure. CONTROL AND LIQUIDITY When you utilize an IRA, 401(k), or 403(b) as a savings vehicle, you can't touch the money in those accounts until age 59 ½ unless you meet some very exceptional conditions or you're willing to incur a penalty, plus pay applicable taxes on any gains within the account. You also don't own the account. You're a custo- dian or beneficiary of a g o v e r n m e n t- s p on s or e d plan, which means they can change the rules and there's nothing you can do about it. In this scenario, who has the control? With a whole life insur- ance policy, access to capi- tal is as simple as making a phone call to the insur- ance company to ask them to issue a loan against your cash value. No applica- tions, no credit checks, and no processing fees. You own the policy and you decide the payback terms. ere aren't any taxes or penalties for accessing that cash value. EASY TO MANAGE For any savings plan to be effective, you have to deposit money consistently, with- out interruption, over an extended pe- riod of time. is happens when you pay the monthly premiums consistently over the life of the policy. Arranging an auto- matic draft from your checking account every month puts your savings on auto- pilot. Your cash value climbs as you pay premiums and as the annual dividends compound. TAX-FREE AND INFLATION-PROOF Your bank might pay you a fraction of 1% annual interest on your account balance, which has you falling behind inflation, plus it's taxable interest income. Your whole life insurance policy will pay an PRIVACY AND PROTECTION Many cops get sued at some time in their career. Money in your bank accounts can be seized as a result of a creditor's judg- ment or civil lawsuit. Your whole life in- surance policy, however, and the cash value within, are private and protected from lawsuits in most states. (Consult an attorney to find out if this applies to you.) is protects your savings today and your financial legacy for future generations. BORROWING FROM YOURSELF Besides the benefits of whole life insur- ance as a savings strategy, there are prac- tical ways to utilize your policy's cash value. Here are a few ways I've maximized the financial advantages of my whole life policy by using policy loans: • Private lending • Covering major car repairs • Replacing my home's air conditioning unit PHOTO: GETTY IMAGES

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