It’s easy to run and grow your business when the conditions are favorable. But what happens when there’s an economic downturn? How can you use life insurance policy loans to help run and grow your business during times of turbulence? According to a U.S. Bank study, 82% of businesses fail due to cash flow concerns and cash flow issues that hold them back. That same study also found that loan rejection rates increase by 30 to 50% during an economic downturn.
So, cash flow is down, your access to money is down how do you continue to grow and run your business during these times? That’s why we advocate very strongly that you position yourself for that ultimate downturn in the economy. Think about it. It’s the factors that are outside your control, and you have to prepare yourself to be able to weather that storm. What better way to do it than to have access to capital? You see, access to capital trumps everything. When you have access to capital, opportunities will find you.
You’ll hear people talk about scarcity and abundance mindset. It’s really easy to talk about the abundance mindset except when you actually feel like there is scarcity when it comes to cash, access to cash, and cash flow. It could be really easy at that time to hunker down and try to get through. But if you have the foresight to build up cash reserves in a life insurance policy, for example, you are actually going to be in a position where you will have abundance. You will be able to use that money for whatever you want.
There are no limitations on how you use life insurance policy loans. There are no qualifications on whether or not you’re able to access that money. The only requirement is that you have the money built up in your policy, and then you’re able to use that life insurance policy loan provision to access that money to weather the storm.
Keep this in mind: your financial situation is going to be compared to everybody else your competitors, your peers. And if you have access to capital at a time when they do not, it’s going to put your business in a much stronger position so that you can actually take advantage of all of the bad things your competitors are going through, and maybe have some opportunities that you wouldn’t have had access to previously.
If cash flow is tight, it’s going to be hard to hire new people. It’s going to be hard to meet payroll. It’s going to be hard to invest in new equipment and technology which is more important than ever these days. And if you have access to money, you’re going to be able to do all of those things, while your competitor, who isn’t necessarily prepared, is going to have a much more challenging time.
That’s the point of having access to capital. Life insurance fits the bill so well because you have two things going on. Yes, you have a death benefit, but you also have an ever-increasing base of capital. It’s guaranteed to have more cash next year than it did this year, and it’s guaranteed to have more cash the year after next than it does next year.
So consequently, you have this perfect compounding, where the money is continuing to increase year after year after year and all you’re doing is putting the same amount of money away. That gives you the access to capital that you need to run and grow your business.
It all comes down to the design of these policies. First of all, they’re designed for cash value accumulation so, early access to cash in the beginning of the life of the policy. This is unique to life insurance policies because typically, with a whole life policy, it takes several years until there’s any cash value you can borrow.
Also, with whole life policies, you’re designing the policies with actuaries. They are actuarially designed to get better and better with time. As you get closer to the end of your life expectancy, the cash value needs to grow faster and faster in order to meet the two promises.
The first promise is to pay that death benefit out anywhere along the line as long as the policy is in force. The second promise is to have a cash value that’s equal to the death benefit at the age of maturity typically age 100 or 121.
In order to meet that second promise, the life insurance company needs to stash away more and more cash year over year so they can meet it. That’s all part and parcel of having access to capital. As the policy grows, as time goes by, the cash value grows greater and greater.
Let me share how a client of ours used this. We set up a policy for them in the late 1990s, and then around 2007 and by the way, they weren’t putting a lot of money into the policy; I think it was like $300 per month but as time went by, during the financial crisis, they had an opportunity to start a business. But they needed capital.
So they called and said, “Hey, do we have enough money in our policy? You said we could borrow against the cash in our policy. Do we have enough cash value to borrow $5,000?”
And sure enough, they did.
They were able to access that money no questions asked.
And that was the thing that amazed them. They just called the insurance company, and the company didn’t ask them what their credit score was. They didn’t ask what they needed the money for. They just said, “Where do you want it? How much do you want?” And that was it. Consequently, they had the money. They opened the business. They used the money to start it, and now that business is worth $400,000. Now they’re at the point in their lives where they’re going to sell the business.
Think about all the income they generated over those years. Now they’re going to sell that business for maybe $400,000 maybe $350,000. That’s an incredible rate of return on a $5,000 policy loan. And it’s one of those things where they didn’t necessarily know what was going to come up, but they knew that, number one, they wanted the death benefit, and number two, they liked having the ability to access the cash if they ever needed to.
So, by taking those steps even without knowing exactly what they were going to use that money for they were able to take advantage of the opportunity when it came knocking on their door.
If you’d like to learn more about putting this system to work for you, your life, your business, your family, be sure to visit our website at 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.