Treat insurance like the wealthy!

[CTO114]

The middle class buys insurance to replace income. The wealthy buy insurance to store wealth.

Why do billionaires buy life insurance they will never use?
Here's a valid scenario; they don't buy it for the death benefit, they buy it for the tax shelter.

A wealthy person buys a large whole life policy from a mutual insurance company, then begin to aggressively over find it. The cash value goes tax free inside the policy. No capital gains, no annual tax, no reporting until withdrawal.
They then borrow against the policy when they need cash. The loan is not taxable, the policy keeps growing as if nothing was taken out.

As a result, they are earning interest on money they are simultaneously spending. On their eventual death, the death benefits pays off the loan and pass to their heirs income tax free.

Same product, completely different purpose.

Maybe the middle class can take a sleeve from how the wealthy mechanize and use the insurance scheme.

[Joy_learns_crypto]

The middle class buys insurance to replace income. The wealthy buy insurance to store wealth.

The wealthy treat insurance as such because they already have wealth to store and the lower class that doesn't have any wealth to store can't think like that.
The wealthy also acquire premium insurance one that can adequately store their wealth which is mostly not the same insurance package a middle class person will go for, insurance is not the only medium the wealthy store their money and Ensures tax free transition to their next of kin.

[Free Market Capitalist]

The middle class buys insurance to replace income. The wealthy buy insurance to store wealth.

The wealthy treat insurance as such because they already have wealth to store and the lower class that doesn't have any wealth to store can't think like that.

In reality, the OP is full of half-truths and clichés. Not all billionaires use insurance to store wealth, nor is it a good way for the middle class to replace income in many cases. Besides, it depends on the country. In the U.S., you can indeed borrow against your insurance, but in many other countries you cannot. What people who accumulate large amounts of capital do tend to have in common is that they accumulate assets in one way or another and tend not to sell them, but rather to use them for cash flow and borrow against them. This applies to people with very large amounts of capital, not to those with net worths of 1–5 million.

[Jostle]

Insurance is a very bad way to "store wealth". There are so many different types of fees associated with insurance.  "Life Insurance" has a high percentage of its underlying as bonds (which is bad in the long run). "Investment-type" of policies have a lot of fees.

Better off to treat insurance as it really is. It is just for coverage, and nothing else. Use the tool as it is meant to be used.

[Joy_learns_crypto]

What people who accumulate large amounts of capital do tend to have in common is that they accumulate assets in one way or another and tend not to sell them, but rather to use them for cash flow and borrow against them. This applies to people with very large amounts of capital

This is the most frequent way the wealthy use to avoid paying tax also they do set up some weird charity organizations which they use to discretely avoid being taxed and then pass it on the their next of kin but obviously most wealthy people leave off borrowing against their assets.

Better off to treat insurance as it really is. It is just for coverage, and nothing else. Use the tool as it is meant to be used.

Insurance has many reality to many people, to the desperate it's a way to finesse the system, could be extreme as taking the life of those who they have taking out life insurance on. cams has caught people deliberately smashing their cars and properties to get that insurance pay check.

[Pablo-wood]

Insurance is a very bad way to "store wealth". There are so many different types of fees associated with insurance.  "Life Insurance" has a high percentage of its underlying as bonds (which is bad in the long run). "Investment-type" of policies have a lot of fees.

Better off to treat insurance as it really is. It is just for coverage, and nothing else. Use the tool as it is meant to be used.

I'm in full agreement with you, the  goal should be properly defined. If the aim is to build wealth then the best go to option is to invest separately in low-cost diversified assets but for coverage and protection, insurance policies is the best go-to option. People who treat insurance as an investment option often do so chasing tax advantages, without realizing how much those fees eat into long-term returns.

[maydna]

I wish that is really right because here, people take insurance for the risk but when they want to claim, the insurance companies takes too long to process. They just say it is the procedures and we need to be patient and no explanation more from them, just need to wait. So I don't think we can use insurance like the wealthy and I am prefer to diversify asset to improves our wealth. But when we don't pay the cost of insurance, they will calls or visits us and asking for the insurance payment, very often until we pays.

[Bluedrem]

You have presented the facts. Yes, the rich want to make themselves known as penniless to evade taxes, which is why they take out loans from banks even though they have enough savings. In that case, they introduce the business they run to the government as a business that has been established. They present it as being in debt.
But the poor in London are basically for survival. From the money they earn, there is very little money left to meet basic needs, which makes it difficult to invest in anything together, so they take out loans from banks and invest and repay the investment money from their discretionary income every month.

[mu_enrico]

Insurance is used for protection, and people who need protection the most are the rich...
You just treat insurance as protection for something that has value. If you lack something valuable, then you don't need insurance.
Generally, if you value health, then health insurance is the most important. You also value future expected income, so you buy accident protection. If you have kids, your future expected income goes way beyond your death, so you buy life insurance. It's not a means to "replace income" or "store wealth."

[Fortify]

It may be what they are doing but it's clearly a form of legal tax avoidance and shouldn't really be allowed, but there is some shred of logic that started it all. It was probably intended for certain reasons for people who have less than a million but ultimately gets abused as a loophole by ruthless accountants until the regulators come and shut it down. When you've got billions you can afford to spend millions on accountants who will figure out every single little lever that you can pull to save portions of your wealth. These rules will rarely be applicable at the right scale to make sense for the average person, because they probably require a whole load of infrastructure to set up for it to work - heck, even indirectly owning an insurance company that you can send the money through and structure in this way. There are few things that billionaires do that can really apply to the finances of an average person because they're in a whole different league.

[Alpha Marine]

NO
Treat insurance like insurance. The purpose of insurance is to protect you against a risk, so there is no point adding more risk to it.
The purpose of life insurance is to take care of your family in case of an untimely death and also to take care of your funeral arrangements.
Because wealthy people do something, that does not make it cool. Also, people who do this are people who are abundantly rich. Middle class people or people who are a little bit rich do not have that luxury.

What rich people do more of is borrow against their financial assets like shares. They don't take profit because they will be taxed, but they take loans on the shares.

It may be what they are doing but it's clearly a form of legal tax avoidance and shouldn't really be allowed,

There is nothing wrong with tax avoidance. The asset is yours, and if you don't want to claim it or take profit, that is totally your business, and you're not breaking any law.
The problem comes with tax evasion.

[Fiatless]

I wish that is really right because here, people take insurance for the risk but when they want to claim, the insurance companies takes too long to process. They just say it is the procedures and we need to be patient and no explanation more from them, just need to wait. So I don't think we can use insurance like the wealthy and I am prefer to diversify asset to improves our wealth. But when we don't pay the cost of insurance, they will calls or visits us and asking for the insurance payment, very often until we pays.

Your concerns might be valid in some cases because the insurance system works well in others. I don't think you understand the benefits of taking an insurance policy. You pay premiums regularly, and the agreed-upon amount is paid to the beneficiary in case of death (in a life insurance policy). The good part of it is that the beneficiary gets the full sum even when the premium is not close to or equal to the agreed sum.

I think it is a good means of reducing risks, saving, and avoiding tax. Insurance policies are also affordable, so even medium-income earners can afford them. Salary earners can allocate a portion of their earnings for premium payment.

[abhiseshakana]

Because my knowledge not deep about insurance and i often hear some insurance companies also frequently fail to meet their obligations. Before put my money on insurance i will consider its counterparty risk from insurer, contract and its regulatory risk. But so far i don't have any insurance. Have insurance of course reduce the risk of high healthcare costs but we rely on the capabilities and terms of the insurance company like we put our money on bank or crypto on exchanger. From prudential case we can learn that even large institutions are not synonymous with zero risk.

Practice that OP explained should be has its standard or specific formula based on country, insurance policy structure, tax rules, and product terms with its standard trading condition. Which mean there are not universal formula. Based on my  experiences, protection to our wealth not just come from insurance. Some example,multiple skill to get multiple income source as a protection to reduce reliance on a single source of income. I see insurance as protection from significant risks that i will difficult to bear on my own, such as expensive and continuously high healthcare costs or the loss of life or income. My emergency fund also protection against minor to moderate shocks.

[EluguHcman]

Why do billionaires buy life insurance they will never use?

Some wealthy investors may just invest their funds in potential assets as a means to hedge their funds against inflations in alternative to store value even for the purpose of families inheritance.

The buying of life insurance even with the abundance of wealths they have acquired that even without them (wealthy) investing further, their source can still sustain them for the rest of their lives even while living in their luxuries, they basically do continues investing to stabilize their net worth regardless the economy situations.

Perhaps the fear of fall poor after being tasted wealths should be one of the reasons why we need to double our hustle and never see any level of impressive rate of wealth as enough for lifetime sustainability.
While we also tend to create financial freedom for our families, having targets of long term goals will give opportunities wealthy inheritance of the Successors.

[Dogedegen]

The middle class buys insurance to replace income. The wealthy buy insurance to store wealth.

Why do billionaires buy life insurance they will never use?
Here's a valid scenario; they don't buy it for the death benefit, they buy it for the tax shelter.

A wealthy person buys a large whole life policy from a mutual insurance company, then begin to aggressively over find it. The cash value goes tax free inside the policy. No capital gains, no annual tax, no reporting until withdrawal.
They then borrow against the policy when they need cash. The loan is not taxable, the policy keeps growing as if nothing was taken out.

As a result, they are earning interest on money they are simultaneously spending. On their eventual death, the death benefits pays off the loan and pass to their heirs income tax free.

Same product, completely different purpose.

Maybe the middle class can take a sleeve from how the wealthy mechanize and use the insurance scheme.

This is not true and I agree with other users that are dismissing this. Why would a wealthy person put money into an insurance policy to take out loans against it when it is easier to directly borrow against assets? You are creating a more complicated scenario that has many other fees and potential issues for everyone involved. People that have assets will take out loans directly against those assets, those loans are clean and standard. I don't think that the middle class have enough funds and resources to even get involved in the business of borrowing money against their insurance policies. But the middle class could borrow against their own assets if they own something significant, but usually in the developed world the middle class is renting. There are people that own homes even more those that have inherited assets, but many middle class people just rent. They don't have the resources to borrow against.

[lombok]

Why do billionaires buy life insurance they will never use?

Some wealthy investors may just invest their funds in potential assets as a means to hedge their funds against inflations in alternative to store value even for the purpose of families inheritance.

The buying of life insurance even with the abundance of wealths they have acquired that even without them (wealthy) investing further, their source can still sustain them for the rest of their lives even while living in their luxuries, they basically do continues investing to stabilize their net worth regardless the economy situations.

Perhaps the fear of fall poor after being tasted wealths should be one of the reasons why we need to double our hustle and never see any level of impressive rate of wealth as enough for lifetime sustainability.
While we also tend to create financial freedom for our families, having targets of long term goals will give opportunities wealthy inheritance of the Successors.

Allocation of resources to valuable assets makes effective defense against inflation. Even if plenty of money is enough to enjoy life in comfort, investment in defensive tools is still done in order to preserve the stability of the family fortune amidst worldwide economic instability.

Fearing loss of fortune results in perpetual efforts. Long term perspective of the finances strengthens the desire to preserve assets in order to transfer them safely for future generations to come.

[blockman]

The wealthy buy insurance to store wealth.

Wrong, it is not to store wealth but to protect their wealth. Insurance is a protection to all of the hard work that they have put in into their assets so that whenever illness or bad incident happens, they don't have to pull and sell from any of it as the insurance covers the expenses.

Why do billionaires buy life insurance they will never use?

I've learned it long time ago that it's better to have it, and not need it than to need it and you don't have it.

[CryptoBuds]

Maybe the middle class can take a sleeve from how the wealthy mechanize and use the insurance scheme.

The wealthy use insurance as strategy to evade taxes but in doing so they are actually exploiting loophole in go's tax policy. Insurance company and tax law have combined to create a framework that is highly advantageous for wealthy but not for middle class.

Therefore effectiveness of insurance depend not only on individual financial circumstance but also on framework of state policy. If tax laws change and govt closes this loophole then this strategy will no longer be effective for wealthy.

On the other hand situation of middle class is completely different. They do not use insurance for saving money or evading tax. Middle-class people purchase insurance to ensure their family do not face any severe financial crisis after their death. For middle class this is a way to overcome financial crises, while for wealthy it is a mean of tax evasion. Government needs to exercise stricter oversight regarding these matters.

[Queentoshi]

...

I believe that if you are not a wealthy individual it is difficult to say exactly how wealthy individuals behave because something you have to know is that they do not all have the same financial behavior even though they all have financial similarities for them to be able to achieve the wealth they have. Assuming that the all trade insurance in a specific manner because they are wealthy as their status is just an assumption that I think is a lie.

[shinratensei_]

Too much work for the middle class to do that, when we are still the middle class we can't have time to do the sophisticated way of the riches growing their wealth through insurance policy, etc. Doing that isn't all rainbow, some of the problem you're gonna face that I can think of :

- You gonna need to pay for expensive premium and upfront costs
- Your money isn't spendable instantly anymore
- Policy lapse so you gotta find someone to watch out, that's going to cost something

We might be better off thinking about owning more asset and creating more value don't you think? This is doable but if you're a middle class or lower class you're probably wasting your time. Just put your money into investment and let it grow to approach wealth. Eventually you're going to realize that some opportunity only available for the riches.