If there’s anything in the financial world that stresses people as much or more than insurance it’s leverage. We hear the term constantly in the news and from various sources of financial information. But, if you’re not familiar with it, the concept can be confusing.
One of the things you will hear most often is “financial leverage is a powerful tool.”
This is true. But it’s not a tool like a hammer or a crowbar. No, financial leverage is one of the most powerful tools you can use. It’s such a powerful tool you need to be careful. Using financial leverage too much, or carelessly, can inflict a lot of damage.
On the other hand, using financial leverage strategies, including applying insurance strategies, can make you a financial superhero.
Here, let us show you how.
What Does “Financial Leverage” Mean?
So what exactly is “financial leverage?”
Simply put, financial leverage is when you borrow money to purchase an asset or invest to grow your money. That borrowed money can come from several sources including banks, private individuals like friends and family, or even yourself if you’re using certain resources. In our society, the use of financial leverage is very common.
For example, say you want to purchase a home. Houses can be incredibly expensive assets. In your case, say that the home you want sells for $250,000. Now you probably don’t have that much money in cash lying around. That’s a very big check to write.
So what do you do?
Like most people, you probably head to the bank and look for a loan. Borrowing that money allows you to move forward with the purchase of your home now. Oh, you’ll have to pay the money back and the bank will charge you an interest rate to make it worthwhile for them to loan the money. But you will also be able to secure a nice home for yourself and your family.
This same scenario plays out with car purchases, getting the money to start a business, and
How Does Insurance Factor In?
Okay, so if financial leverage is borrowing money to purchase assets, then what does insurance have to do with any of it? Aren’t we talking about banks and mortgage brokers? Doesn’t sound like an insurance conversation, does it?
Except insurance is a huge part of effectively using financial leverage.
Here, let us show you.
Protecting Your Investments and Your Family
Insurance is an excellent way to protect your family. You’ve heard this before. We’ve said this before. But how exactly does that relate to leverage?
Consider the earlier example of purchasing a house. You’ve bought this lovely home. Your family is living in it, making memories, and creating a space that will be important to all of you for years to come. Everything looks like it’s going well.
But what happens when the unexpected strikes? What if you or a loved one suffers an early end of life? What if you are injured in an accident and are now dealing with a temporary or permanent disability? How do those payments get made?
This is where insurance can help enhance your use of financial leverage as a tool
Life insurance policies can be designed to cover the remaining debt against assets such as your home and vehicles. Should an unfortunate passing occur, the money from the death benefit will cover all of the debts, paying off everything and securing your family’s financial future. Additionally, death benefits are tax exempt, making them one of the best ways to transfer wealth onto the next generation.
Disability insurance can help secure a means of income in the event of a serious injury or illness. Auto insurance policies with gap coverage can help make sure an accident doesn’t leave you without a vehicle and with a pile of money still owed on it. There are so many ways insurance can be used to protect your assets and your family from accidents or tragedies.
Consulting with a trusted insurance professional will help you find the best way to implement an insurance strategy in your finances.
Using Insurance as a Financial Tool
There are many ways you can use insurance as a device of financial leverage,
A collateral assignment is one of them. Simply put, collateral assignment is when you put the benefit of an insurance policy up as collateral for a loan. Many different policies can be used in this way. This method can allow you access to a higher degree of financial leverage for a number of uses. But it’s not a universal thing for all policies. Before trying to use insurance as a collateral assignment, talk to your trusted insurance professional.
Collateral assignment isn’t the only means of leveraging insurance. Some insurance policies have a cash value. Whole and universal life insurance are types of policies with this cash value. Basically when you pay your premiums, part of the payment goes to insuring your life while the other is used to build up cash value in the policy. This means the policy has a real-world value beyond the death benefit.
One way you can use this cash value is by taking a loan from it. You borrow money from the cash value of the policy, say to purchase a car or start a business, and then repay it and its assigned interest. Essentially it’s the same as a small bank loan, but with one important exception. If the money is not repaid, then the death benefit covers the loan amount when you pass away.
Many famous entrepreneurs used cash value insurance to start businesses or keep them afloat. J.C. Penney tapped his policies to help keep his stores functioning during the Great Depression. Ray Kroc, of McDonald’s fame, and Walt Disney both also used cash value life insurance as a means of funding for their businesses. When done right, it has proven to be a financial instrument for the incredibly successful throughout history.
As with all things insurance related, we recommend you talk with your trusted insurance professional about these options. Some may be right for you. Others may not be your best option. Take the time to learn what will work best for you.
Empowering Financial Superheroes
Everyone needs help sometimes. Even superheroes have their allies. Batman had Alfred. Superman had the aid of intrepid reporter Lois Lane and adventurous photographer Jimmy Olson. Those people who helped our greatest heroes navigate their unique paths.
At Help2Cover our team of trusted advisors helps people just like you achieve their financial superpowers. How? By providing expert advice in the world of insurance with unparalleled quality and integrity in this industry. We’re here to serve you and help you soar.
If you have any insurance needs or questions, reach out to the team of trusted insurance professionals at Help2Cover today! We’re ready to serve you!
At Help2Cover (H2C), we understand that insurance goes hand in hand with solid financial planning. H2C Insurance Agency was founded by a group of professional insurance and financial planning experts. With years of experience in the industry, we have a deep understanding of the importance of comprehensive coverage and strategic financial guidance. We go beyond traditional insurance services. We strive to provide holistic solutions that integrate insurance protection seamlessly into your broader financial goals. Whether you’re seeking personal insurance coverage or business insurance solutions, our dedicated team is here to tailor a plan that aligns with your unique needs.