When it comes to owning a family business, there’s no official job description. But there is a lot of responsibility. You’re providing for your family and not only that, but also for your employees. Especially now, it’s important to think about how to recession-proof your business and how you could utilize whole life insurance to do so. Whether you have an existing whole life insurance policy from 20 or 30 years ago that’s been accumulating cash value, or you’re considering how you could use whole life insurance in your business now and moving forward, there are a few key components that make it perfect for setting up your small family business to weather a recession. Today, we’re going to talk about how to set yourself up to recession-proof your business using a whole life insurance policy.
When it comes to owning a small business, there’s no formal job description that comes with the title but there is a lot of responsibility, especially in times of economic hardship. Lately, people are throwing around the word “recession” more and more. So you might be wondering, “How do I set my business up so that I can take advantage of opportunities and not be pinched when the economy is down?” According to a U.S. Bank study, 82% of all business failures are due to poor cash flow management. That makes sense, because as we always say: It’s not what you buy it’s how you pay for it that will impact your business.
The reality is, we’ve been trained by banks, large corporations, vendors, and even the government to use our money in ways that are detrimental to us but beneficial to them. If we could unlearn that process and relearn a system that puts us in control and redirects the flow of money back to us instead of away from us, we suddenly have an unfair advantage over our competition and our peers.
Many people see whole life insurance as an expense or a bill a way of using money that leaves them out of control. But in reality, the way we design these policies is for cash value accumulation. That holds true for older policies, too those from 20 or 30 years ago still have guaranteed cash value growth. You can tap into that growth on a guaranteed basis. Whole life policies also have a guaranteed loan provision, and in many cases, dividends that accumulate over time.
With all of these benefits, whole life insurance allows you to recession-proof your business because you can access that money without questions, without credit checks, and without a required repayment schedule.
Here’s the key question: What’s the first thing to dry up in a recession? Simple, access to capital. The first thing banks do is tighten up lending. In 2008, during the financial crisis, banks froze credit lines whether it was a home equity line or a business line. They simply said, “You can’t tap into it anymore.” Then, they often changed repayment terms, requiring principal and interest instead of interest-only payments, forcing borrowers to scramble for new banking relationships.
Knowing this happens, doesn’t it make sense to set up your own pool of capital that you can tap into at any time, for any reason, without permission? Your right to a policy loan is a contractual guarantee. You aren’t seeking approval you’re giving instructions to access your money when you want it. That puts you in control. That’s what we advocate: keeping our clients in control of their money and cash flow at all times.
The beauty of policy loans is that you’re not actually borrowing from your policy you’re borrowing against it. Your accumulated cash value remains in the policy, still growing, while the insurance company issues you a collateralized loan against it. Your pool of capital continues to earn guaranteed growth and dividends as if you hadn’t touched it. And as you repay the loan, your available borrowing power increases dollar for dollar.
For example, if you make a $500 payment toward your policy loan, your loan balance decreases by $500, and your available equity increases by $500. If you wanted to, you could call the insurance company the very next day and request that same $500 back. They’d simply ask how you want it mailed as a check or sent via ACH to your account.
Compare that to a mortgage or bank loan. If you make extra payments to a bank, you can’t just take the money back. You’d have to reapply, face credit checks, and possibly be denied. That’s the huge advantage of a policy loan especially during uncertain times. With a bank line of credit, you may have access to funds today, but tomorrow they could decide to freeze it. With a policy loan, the terms don’t change just because the economy does.
And here’s the kicker you can be the bank’s best customer: never late on a payment, always in good standing. But if the economy shifts or the bank perceives new risks, they can still reduce or cancel your access to credit. That’s why you need to be prepared for both good times and bad. As the saying goes: A banker will sell you an umbrella when it’s sunny, and take it back when it starts to rain.
We’ve seen it happen time and time again. With whole life insurance, you keep the umbrella.
If you’d like to learn more about putting this concept to work for your life, your business, and your family, visit our website www.tier1capital.com and click the “Schedule Your Free Strategy Session” today.
Thanks for reading, and remember it’s not how much money you make, it’s how much money you keep that really matters.