Why Insurance Is the Defense of Your Financial Plan (And Why Defense Wins Championships)

The adage in the sports world is that defense wins championships. If you’re a sports fan, you will know this is true. The Seattle Seahawks defense just dominated its way to a Superbowl title by absolutely dismantling the New England Patriots. Insurance acts as the defense of your financial life.

Let me explain. Insurance exists to transfer risk from the owner, to the life carrier. There are many, many different types of insurance products out there, but they all transfer risk in one way or another. There’s home insurance, auto insurance, travel insurance, pet insurance, life insurance, disability insurance ect. The list goes on. All of these types of insurance are different types of defenders for your financial life.

Now, not every defender is built the same way or can do the same job. Some are more of an all-rounder type, and some are very specific and very good at one thing. However, defenses rarely thrive off of just one player. It takes the entire team, working together, to shut down an opponent and win the game. This is how insurance fits into your finances.

The number one rule of wealth building is don’t lose money. It’s impossible to lose in the long run if you don’t give up points. You can tie if you have no offense, but you can’t lose if you don't give up points.

So how do you build a championship caliber defense? Well in sports you can research, draft and develop prospects, or you can pay an already established player to complete the task for you. This works the same in your finances. You can research and develop a plan by yourself, allocating time, energy, money and resources towards mitigating a risk. This may work for smaller monetary value items, such as pet insurance or the collision side of auto insurance (not the liability side!), but it doesn’t work well for larger risks such as loss of income due to disability, or dying early.

The other option is you can buy insurance and transfer the risk to an insurance carrier. Insurance acts as a very deep pool of free agents ready to sign with your financial team. All you have to do to shore up a weakness in your financial defense is find the player that fills that gap, and pay them appropriately. Where it gets even better, is when you find the rare two-way player.

The two-way player is a dream come true for any sports franchise. Someone who is defensively sound, but can contribute on offense as well. Whether that’s Travis Hunter playing on both sides of the ball down in Jacksonville in the NFL, or Cale Makar playing for the Avalanche in the NHL. These types of players can literally change the fortunes of any team, but they come at a high cost. That cost is worth it when they produce.

Shifting to your financial system, a properly structured participating whole life policy fills that role of the offensive minded defensive player. Insurance by definition is about transferring financial risk and hardship from you, to the insurance carrier. You pay premium for this risk transfer. Where the participating whole life comes in, is that it carries out its defensive responsibilities, which is providing a tax-free lump sum of money to your beneficiaries should you pass away, but it also allows you to go on offense as well.

Cash value, or equity within the policy, grows every single day, tax-advantaged, guaranteed because the cash value must equal the death benefit at the life insured's age of 100. You then have access to this cash value, through policy loans, to pay for whatever you need in life. The policy loan however is not a withdrawal, so that tax-advantaged growth continues uninterrupted. The efficiency of the policy means that over time as we increase the death benefit through paid-up additions, for every dollar you pay in premium, you will get access to more than one dollar in cash value. This is how the defensive player transitions to offense.

A word of caution however, when you access your cash value, you are diminishing the life insurance’s defensive responsibilities until that loan is paid back. All outstanding loans are recouped from the death benefit before being passed to your beneficiaries. It’s the same as a defenseman pinching at the blue line in hockey or a defensive back undercutting a route. They are trading positioning on defense to go on offence. This works well when the system accounts for this. Its no different in your financial life.

A good defense built into your financial system allows you to be more confident when you build wealth because you know your risks are mitigated. Mitigating those risks takes planning and effort, but it allows you to smooth out the downs and focus on the ups. Build a championship defense for your finances and reap the rewards that come from a well-balanced team working in synchronization.