In times of uncertainty, when risks of business and investment losses run high, investors look for ways to invest their money in things that won’t be severely affected by the situation.
Some people take out life insurance policies and pay their monthly premiums while others invest their money in physical gold either by storing the physical bars and bullions themselves or by opening a gold IRA account. Storing some of their wealth provides them the assurance that they won’t lose everything when economic hardships persist.
However, gold can also act like life insurance, and here are the ways how:
1. Gold Can Be Used To Build A Retirement Fund
Gold is very similar to a life insurance policy because it can be used in long-term investing to store wealth and build a retirement pension fund. Many life insurance companies offer the option of a retirement pension fund as either the main component or a supplement element of a life insurance policy. Individuals usually open a life insurance account and pay for premiums. After several years, the insured person will be given an option to receive their retirement pension fund at a given date or when they retire. In this sense, life insurance acts as a way to build a retirement fund.
Similarly, gold can also be used to store wealth and build a retirement fund. In fact, many Americans roll over their Individual Retirement Account (IRA) pension funds into gold IRA accounts. This entails withdrawing all or a portion of their money in their IRA accounts and using them to open a gold IRA account.
Most financial services companies don’t offer a gold IRA account because it has special requirements and is regulated differently. For one, they have to make sure that they’ll only deal with IRA providers who are accredited by the Internal Revenue Service (IRS). They’re also required to hire someone to act as gold custodians who are IRS-accredited and comply with IRS regulations and procedures. So, make sure that when you open a gold IRA account, look for financial companies that have these special requirements.
2. Gold Can Help Save Taxes
Another way that gold acts as life insurance is that you can use your gold investments to save on taxes. Proceeds of life insurance policies are tax-free. The person deducts some money from his or her wealth or income to pay for insurance premiums. They won’t be charged with income tax since it was taken out before income taxes are computed and incurred. The proceeds of the life insurance were also exempted from the payment of the income taxes.
You might be wondering, how is gold taxed in an IRA? Similar to life insurance, an investor can opt to set up a pretax IRA which isn’t subject to tax. This means that the money an individual uses to set up a gold IRA won’t be subjected to tax. The investor can even claim the amounts he or she set aside to set up the pretax IRA as tax-deductible items. When the time comes for the payout from the gold IRA, the payout is also exempt from the payment taxes because they’ll be your retirement pension funds.
3. Gold Keeps Its Value Amidst Uncertainty
One of the things that gold does which makes it act like a life insurance policy is that it provides a hedge against risk. Investors who have done some gold trading would know that the price of gold typically moves opposite the price movement of shares of stocks. This means that gold won’t be affected by uncertainty in economic and business conditions.
Insurance is an investment in something that guarantees at least a minimum return on the premiums you paid. This operates as an assurance that the person insured will still get some money in the event of a loss. For instance, a person who took out a life insurance policy will receive the insurance proceeds on the designated payout date. This is certain to happen even if all his or her other businesses and investments go bankrupt because of economic difficulties.
Gold acts like this because it keeps its value even if there are a lot of economic hardships going on. For example, when war or other armed conflict breaks out, some insurance companies won’t be able to pay out the insurance proceeds to the beneficiary in the meantime while conflict rages on.
When things get back to normal after the war or armed conflict, some insurance companies might not be around anymore if they’ve been bankrupted by the losses sustained during the war. But during the war or even after the cessation of hostilities, gold keeps its value.
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4. Gold Diversifies Your Portfolio
Gold also acts as a life insurance policy because it helps diversify an individual’s investment portfolio. All kinds of investments involve some degree of uncertainty and risk.
Investments in physical businesses run the risk of losing money if the business fails or goes bankrupt. Investments in stocks risk losing when the share prices go down. Even the mere act of holding hard cash risks the physical cash getting stolen or being lost somewhere.
Investors put their money in many different kinds of investment instruments. The purpose of this is to spread the risk among many different investments. If one investment loses money such as when share prices plummet, or when businesses go bankrupt, then the investor would still have some of his or her money placed in other types of investments.
Life insurance helps diversify an investor’s portfolio because it assures that the insured would receive at least some amount of money even if all the other investments are lost. Gold functions in much the same way because it’s an assurance that the investor would’ve kept something of precious value, even if something goes wrong with all of his or her other investments.
You can set aside money in either gold or life insurance to store and build a retirement pension fund. Both a gold IRA and life insurance help you save on taxes. As with life insurance, gold gives you that assurance that you would’ve at least preserved a portion of your wealth. This can also help you diversify your investment portfolio.