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5 Reasons to Own a Whole Life Insurance Policy

Sometimes you’ll hear that whole life insurance is a bad investment. And let’s just get that off the table now, because life insurance is not an investment. Let’s go over five reasons why you would want to own a whole life insurance policy.

Life insurance is not an investment. In fact, to call life insurance an investment would be an insult to what life insurance can and will do for you. You see, investments, by definition, inherently have risk. And with whole life insurance, there’s no risk baked into this cake. In fact, all of the risk is transferred over to the insurance company. So it’s a very safe asset to have in your portfolio.

Let’s get started with the five reasons why you would want to own a whole life insurance policy.

Number one is to protect your family and your business. Remember, it is life insurance. And life insurance pays a death benefit if and when an event occurs. Meaning the death of the insured. And if that were to happen, the family may suffer financially, and the business may suffer financially. So at its core, life insurance provides protection to make sure that the family can continue and the business can continue. 

And I hate to break it to you guys, but we’re all going to die. So when that event occurs, that is when you want the death benefit to be paid out, when there’s a problem, no more income, no more principal running the business. These events are detrimental to the units and the death benefit could help you along the way. Let’s face it. Dying is bad enough. There’s no sense doing it for free.

Number two is the living benefits of whole life insurance. Whether you have a regular whole life insurance policy designed for death benefit or a specially designed life insurance policy designed for cash value accumulation. Either way, they have living benefits. This includes the policy loan provision that allows you access to your cash values throughout your life as the policy owner. One of the best parts of that loan provision is that when you borrow against your cash value, your money continues to earn interest, as if you hadn’t borrowed because it’s a collateralized loan. What that means is, you’re borrowing against the equity of your policy. Your equity never leaves the policy.

Number three is other benefits. These are special riders added to the policies that could allow you to have your premium waived should you become disabled, or chronic or terminal illness riders, that allow you to tap into the actual death benefit, that huge pool of money, before you die to take care of chronic and terminal care needs. And because of that rider, you’re actually allowed to tap into the death benefit on a tax favored basis. Which brings us to number four, tax benefits.

There are a ton of tax benefits with whole life insurance policy including tax deferred growth, a tax free death benefit and tax, favored access through the policy loan provision. Not to mention the fact that life insurance distributions are given favorable tax status, which means that the first dollars you pull out are considered the first dollars you put in. It’s called FIFO, first in, first out. Contrasting that to investments where the first dollar’s pulled out are considered the growth or the gain and therefore are taxable.

Here’s a life hack, if you’re considering deducting your premium payments that you’re putting into the policy, this is a big no no. You never want to do that because on the back end, it could cause your death benefit to become taxable.

Which brings us to our fifth and final reason why you would want a whole life insurance policy, and that is to supplement your retirement income on a tax-favored basis, As we mentioned earlier, the money is accessible on a tax-favored basis.

But what taxes do you save? Well, quite simply, federal income tax, state income tax, no Social Security offset tax, no increase in your Medicare premium. And let’s face it, by having to pay a higher Medicare premium, isn’t that really a tax?

Additionally, the death benefit passes to your name beneficiary on a tax free basis. And in most states, the death benefits pass outside of probate and outside of state inheritance or state estate taxes.

The long and the short of it is using your whole life insurance policy to draw from during retirement can save you a ton of money in the long run, plus, guarantee your legacy gets passed on to your heirs. And wouldn’t a great way to make sure that your money last as long as possible, be to avoid as many taxes as you possibly can in retirement? We have to protect our assets any way we can. And life insurance provides a great way to do that.

Check out our latest YouTube video to learn more.

If you’d like to learn more about how to utilize a whole life insurance policy in your portfolio, schedule your free strategy session today.

And remember, it’s not how much money you make, it’s how much money you keep that really matters.

Can I use my Policy for Monthly Expenses?

In Nelson Nash’s book, Becoming Your Own Banker, he mentions that your goal should be to have your premium deposits equal to your expenses. Does that mean you should be paying your expenses through your policy loans? Not necessarily. 

Specially designed whole life insurance policies designed for cash accumulation are powerful assets. They provide safety compounding and a guaranteed death benefit for a named beneficiary. They allow a way to pass on generational wealth, primarily through the death benefit, but also offer many living benefits that the policy owner is able to take advantage of during their lifetime. Mainly, they’re able to take policy loans, a contractual guarantee in these contracts, and the utilization of policy loans can make your money more efficient.

However, you don’t want to overestimate what these policies are capable of achieving. It could leave you in a position where you’re feeling pinched and consequently making poor financial decisions.

One of the most misleading concepts that we’ve seen people advised on is running all of their expenses through their policy, whether it be personal expenses, household expenses or business expenses.

You see, these policies are great for a few things. They’re a great warehouse for wealth. They’re a great place to store money to build up for investment, and they’re a great way to help you get out of debt and get out of debt more quickly, on the positive side, instead of at the zero line. However, running your expenses, on a monthly basis, through this policy is not advisable. 

In some cases it may make sense. For example, if you have a job loss and you don’t have access to other money, your whole life insurance policy is a great way to have an emergency fund built into your financial plan where you have guaranteed access to that money.

And that’s the key. You set up this policy. Maybe it should be an emergency fund, and an emergency occurred. Now you have access to capital, but to willy nilly run your expenses through your policy. That is a big no-no.

You see traditional banks are still good for the convenience of debit. When you hear the term becoming your own banker. It’s for major purchases. Financing major capital purchases, vacations, paying off debt investments, larger purchases on a less frequent basis.

But stepping back and looking at this whole concept of running your expenses, whether it’s a business expense or personal expenses, through your policy, what you’ve literally done is you’ve added the concept of additional interest to your financial equation. Paying interest is never a good thing. And make no mistake, when you borrow against your life insurance policy, you are paying interest not to yourself, to the insurance company.

With the investment banking concept it is suggested that you use a dividend paying, mutually owned whole life insurance company where the policy owner is part owner of the company, as it relates to their policy. But you’re not directly receiving that interest back.

If the insurance company makes a profit on your policy, they pay a dividend. Those dividends are credited back to your policy. Why? Because you are the owner of the company as it relates to your policy. And if you’re the policy owner, then all of the profits that the company made come back to you.

In conclusion, these policies are great for financing major capital purchases, investments and paying off debt. However, running your everyday monthly expenses through the policy is causes you to pay undue and excess interest. Every dollar you pay unnecessarily towards interest, you’re not only going to lose that dollar, you’re also going to lose what that dollar could have earned you, had it been invested. It’s called opportunity cost.

If you’d like to learn how to make your cash flow more efficient and how to put this process to work for you, your family, or your business, schedule your Free Strategy Session today.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.

5 Core Elements to Financial Security

Have you ever consider what impact external elements are going to have on your ability to thrive and retire one day? Let’s talk about the five core elements that have a huge impact on our financial security.

Have you ever heard, ask a better question and get a better answer? This applies to financial planning as well. If you’re asking the wrong financial questions and having the wrong financial discussions, you’re never going to land with the right financial solution. We learned many years ago that the traditional financial planning industry isn’t having the right financial discussion. 

It was obvious from the beginning that the traditional planning process was and still is, based on math. The industry was using math to achieve future financial assumptions and accumulation results over a period of time. And let’s face it. Math is math. When done properly, it’s right. But here’s the problem. When applied to the future, the core elements change the results dramatically. 

There are actually five core elements that are going to impact the accumulation of your wealth. Those five elements are risk, taxes, regulation, inflation and depreciation of the dollar. All of these elements are going to have a dramatic effect on the accumulation of your money. $1,000,000 today is not going to have near the buying power as $1,000,000 in 30 years.

But the problem is the industry is still using that math and saying, “Hey, you’re going to have $1,000,000”, and you’re thinking, I’m going to be able to have $1,000,000 based on today’s core elements. The problem is we don’t know what those core elements are going to be 30 years from now. Heck, we don’t even know what they’re going to be two years from now. And here’s the problem. Many of the financial solutions offered up by the financial services industry contain these five elements.

That’s why it’s important to protect your money from as many of these core elements as possible, namely, risk and taxes. Control what you’re able to control and the rest will fall into place. 

You need to focus on controlling what you’re able to control, because, there are other elements that we aren’t able to control that are going to impact our financial security in the future. But, by controlling the things that we have the power to control, we are able to stack the odds in our favor.

But here are the questions you really need to ask.

Which of these five core elements do you want in your plan? Which of these five core elements do you have control over? Are the solutions you’re being offered, are they eliminating these core elements or are they feeding these core elements?

When it comes to financial security, it’s an important to protect your assets from all of these elements that you’re able to. If you’d like to learn more about how you can protect your assets from these five core elements, schedule your Free Strategy Session with us today.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.

Differences Between Whole Life Insurance and Policies Built for Cash Accumulation

Have you ever wondered what the difference is between a regular whole life insurance policy versus a whole life insurance policy designed for cash accumulation? Well, there are a few differences in the way the policy performs and their design.

A whole life insurance policy is a permanent life insurance policy that as long as it’s in force, it’s a unilateral contract between the policy owner and the insurance company. The insurance company is going to provide all of the benefits in the contract. The policy owner is only responsible for one thing, and that is paying the premium.

The insurance company is promising to pay the death benefit once the insured dies. As long as that policy is in force, which will be the whole life, as long as the premiums are paid.

The second promise is to have a cash value in that policy that’s equal to the face amount at the age of maturity, which is typically age 121. These policies are actuarially designed to get better and better every single year. Why? Because of that second promise. The insurance company has to stash away more and more money every single year in order to meet that second promise of having equal cash value and death benefit at that age of maturity.

So we’ll often get the question, “Hey, I’m kind of old. Can I still get a whole life insurance policy? Isn’t it really expensive?” And to that, the answer is, well, it is more expensive, but that’s because the insurance company has less time to meet that second promise. They have to stash away more money sooner in order to meet that second promise. 

So here’s an example. Let’s say you’re 40 years old and you’re thinking about insuring yourself, as well as ensuring your parent who is 60 years old. Now, when you’re looking at insuring your parent and you’re using a policy paid-up at age 121, if your parent is 60 years old, there’s only 61 years to stuff the premiums into so that the insurance company has cash value equal to the initial death benefit at age 121.

Now let’s shift over to insuring yourself. If you’re 40 years old now, you have 81 years to stuff the premiums into to make sure that the insurance company has cash value equal to the initial death benefit at your age, 121, so the premiums will be lower in your situation versus your parent.

But keep this in mind. For your parents policy, the cash value will be greater everywhere along the line because the insurance company has to put more cash away because they have a shorter window in order to put that money away.

So let’s shift gears. What’s the difference between that regular whole life insurance policy that we just talked about versus a whole life insurance policy, especially designed for cash accumulation? Typically, when you’re dealing with a specially designed policy, there are a few criteria you want to have.

Number one is you want to make sure the company is a non-direct recognition company that pays dividends to their policyholders. Number two, you want to make sure you have a paid-up additions rider on the policy that allows us to supercharge the cash value accumulation early on in the policy.

Typically, with the regular whole life insurance policy, it takes about ten years for them to become efficient from a cash value perspective. Meaning if you have a regular whole life insurance policy, you’ll have some cash value accumulation, but it will be slow and steady up to that age 121, that age of maturity. But with a specially designed policy, the cash accumulates more quickly within the first few policy years.

Typically, you could expect the first four policy years to be vital to have that paid-up additions rider on. So you have access to a larger portion of the premiums you’re paying into that policy. A specially designed whole life insurance policy focuses on cash value access versus death benefit.

Now, the death benefit is also important because we’re talking about a whole life policy, and usually the policy will be in effect at your death. So somebody is going to benefit from that death benefit. But, the fact that the policy gets better and better year after year is the engine that makes the cash accumulation vehicle run.

Another key about these specially designed policies is it has a built in flexibility factor because it has a paid-up additions rider. We have the flexibility of dropping that rider and reducing the premium down to the base premium, versus with a regular whole life insurance policy. You’re kind of locked in to that premium and the only way you could get out is with a contract change to lower the face amount.

When utilizing a specially designed life insurance policy, you have the built in flexibility to be able to reduce your premiums when life happens. Let’s say the car goes, a roof, or even a furnace goes and cash flow is tighter. You can reduce the premium on the paid-up additions rider.

Typically with these specially designed policies. You want that paid-up additions rider active for anywhere between four and ten years of that policy. After that, the whole life insurance policy, the base policy within the specially designed contract becomes more and more efficient and you no longer need that supercharger on it. 

That brings us to a question that a client had recently. And the client said, “Hey, if these policies get better and better every year, and by the fifth or sixth year for every dollar I’m putting into the policy as far as base premium, my cash value is growing by more than a dollar, shouldn’t I wait to put the paid-up additions rider on in the sixth year rather than in the beginning?”

And the answer to that is simple. As we went over today, the paid-up additions rider is what supercharges that cash value accumulation within those first policy years. So for that reason, it’s important to fund that paid-up additions rider early on in the policy so that you can make your contract more efficient on a quicker basis. instead of the policy breaking even on an annual basis, meaning that the cash value increase is greater than the premium in, say, the sixth year, you could actually accelerate that to the fourth or fifth year by having a paid-up addition’s rider on the policy right from the beginning.

One note on the similarities between these contracts, the specially designed and the regular whole life, is that both have contractual guarantees for the loan provision, meaning that if you have cash value available within your policy, you have a contractual guarantee, access to that policy, via the policy loan provision, so that you have flexibility and access to that money.

So let’s review what we talked about today. First and foremost, the difference between a regular whole life insurance policy and a policy specially designed for cash accumulation. The specially designed policy has more flexibility and becomes more efficient sooner because of the super charge that comes with the paid-up additions rider.

If you’d like to get started with this specially designed whole life insurance policy or you already have policies and you would like us to take a look at them, be sure to schedule your free strategy session today.

And remember, it’s not how much money you make, it’s how much money you keep that really matters.

Strategy to Accomplish a Debt Free Lifestyle

In today’s economic environment, with high interest rates and high inflation, anyone could end up with a credit card balance. But the question is, how do you get out of that debt as quickly and as efficiently as possible? And how do you do it in a way where you actually come out better off than you were before?

Whether you’re buried in debt or you’ve accumulated more debt than you’re comfortable having. You want to get out of debt as quickly as possible. But following conventional ways of getting out of debt leaves you with no money and leaves you more frustrated after the debt is paid off than you were before you started paying off your debt.

Think about it. Conventional wisdom teaches us that debt is bad and that we need to get out of debt as quickly as possible. And the way most people think about debt, that means putting all of your extra cash flow towards that debt to bring it down to a zero balance as soon as possible.

But we need to be able to enjoy life along the way, even if we have accumulated more debt. And more importantly, we also need to be able to save for the future so we don’t end up in this situation again.

That’s why it’s important to think outside the box so that you can get your debt paid off as quickly as possible and begin to save or put yourself in a position where you have access to money so you can also enjoy the benefit of having a good income. 

We were speaking with a client this week who made a great income $200, $300,000 a year, but he has $1,000,000 of debt. And he asked if is there a way I could actually manage this and still retire, because he’s 59 already.

This is our favorite part of the job. Showing people how to get out of debt more quickly than originally planned. Plus, saving for retirement.

Conventional wisdom teaches us that you need to put all your money towards debt. But if we don’t break that debt cycle by saving outside of the debt, even if he knocks out the million dollars of debt, at the end of the day, using conventional wisdom would only leave him at the zero line and no better off for retirement.

And here’s the point If he focuses all of his free cash flow to paying off his debt, he can’t begin to save until his debt is paid off. He is violating one of the key variables of compound interest. He’s giving up his time. And this is not a mutually exclusive choice. You can start to save and you can pay off your debt quicker if you do it the right way. 

You see, all you have to do is add one extra step since you already have a pretty good income. All you have to do is redirect some of those debt payments into an account that you own and control and have access to. It’s only adding one extra step, but that one extra step makes a huge difference over a lot of time.

You see, this client had 12 payments leaving his control every month, and all you need to do is to stop one of those payments from leaving your control and redirect it back into your control. And when that happens now, you can reverse the flow eventually on all 12 of those payments.

By using a specially designed whole life insurance policy designed for cash accumulation. This client is able to tackle his debt while saving simultaneously. You see, you start by redirecting one or the extra debt payments towards the policy. Start building up that cash value, that pool of cash that you own and control. And once you have enough, you pay off your smallest debt and then you have a free debt payment that you’re able to redirect into your policy to knock down that policy loan.

So now in the policy, we have the premiums building the cash value as well as the policy loan repayments, building that cash value. And what happens is exponential as we continue knocking down each and every single one of those 12 debts, we have more and more cash flow going towards our control instead of away from our control as it is now.

And that’s why you can get out of debt quicker using this method because you’re filling up your cash value with two hoses. One, your premium deposits, and two, your loan repayments.

Have you accumulated a huge sum of debt or just more debt than you’re comfortable carrying? Well, there could be a way to get out of debt faster by adding one extra step.

You see, instead of pushing all your money to outside entities, credit cards, banks, mortgage companies by adding this one extra step and paying yourself first. You could break the debt cycle in your life so you’ll be less dependent on banks, credit companies and other outside sources for access to money and instead have a pool of cash that you own and control to take back the finance function in your life.

We are not using any extra cash flow. This is all cash flow that’s built in our clients income, cash flow that’s already currently being used to repay the debt. It has actually no impact on his day to day to add this one extra step. But, what it does have an impact on is his future and his family’s future. Although we’re paying off the same amount of debt and we’re using the same cash flow, at the end of the day, we’re left with a pile of cash that the client owns and controls and is able to use. Whether it be down the line to finance future purchases, go on vacation, make an investment, or even further down the line to fund his retirement.

That’s why our process to get you out of debt quicker allows you to one, get out of debt. Two, get out of debt quicker. Three, begin to save today so you can take advantage of the magic of compound interest. And number four, we can show you how to get all those policy loans paid back so that when you go to retire, you can use that money to supplement your retirement income.

If you’d like to learn more about exactly how our process works, check out our free web course, The Four Steps to Financial Freedom. And remember, it’s not how much money you make. It’s how much money you keep that really matters.

Tax Benefits of Cash Value Life Insurance

We often talk about the living benefits associated with cash value life insurance. Wouldn’t the best way to make sure your money goes as far as possible and as as efficient as possible be by protecting it from taxes?

Before we get started, let’s address the elephant in the room. Are you able to deduct premium payments toward your life insurance policy? The answer is a big fat no. You may be wondering why. Well, let’s think of it this way.

If you were to deduct this small premium payment over here while you’re still living it would cause this huge guaranteed pile of money, the death benefit to be taxable to your named beneficiary.

One of the hallmarks of life insurance is that you could take pennies in premium and turn them into dollars in death benefit. That is maximum leverage. By getting a tax deduction on the pennies, you get a taxable bill on the dollars. That’s not a good trade off. It simply doesn’t make sense.

So although you may be looking for strategies for living tax benefits while you’re alive, it doesn’t make sense to sacrifice the tax free death benefit in the long run. Here’s another key. There are so many tax advantages to owning cash value life insurance, and we’re going to go into those right now.

First of all, tax free access to policy loans via the policy loan provision. And keep in mind, all loan proceeds are, in general tax free. Using the loan provision allows you to tap into that cash value, to use it for whatever you want to use it for. Whether it be to send your kids to school, grow your business, do a home improvement. It’s a contractual guarantee, meaning you don’t have to justify what you’re using the money for because you’re guaranteed access to those policy loans via the contract between you and the life insurance company.

Another big benefit is that the cash value does not have to be reported on the FAFSA, which is the Free Application for Federal Student Aid. Meaning when it’s time for your children to go to college, the money that’s stored in the life insurance cash value isn’t going to be reported and isn’t going to be counted against your college tuition aid. There is not even a question on the FAFSA form to disclose cash value in your life insurance.

Another tax benefit is that the policy cash value is able to grow on a tax deferred basis as long as it’s in the life insurance contract. That’s why we talk about using policy loans so much, because not only do you have access on a tax free basis via the policy loans, but you also have tax deferred growth within the contract.

So you’re able to experience continuous compound interest on that cash value even after you access it through the policy loans, for example. What that means is when you access a loan on your life insurance policy, your money continues to grow as if you hadn’t borrowed.

A life insurance policy loan is a collateralized loan. You’re not borrowing from the policy, you’re borrowing against the cash value. And the cash value is the collateral. But here’s a caveat: that only happens if your policy is what’s known as non direct recognition, meaning that the insurance company will not penalize you by giving you a lower dividend if you have a policy loan.

The companies we typically deal with are non-direct recognition, meaning the policy is going to perform the same for our policyholders, whether or not they have a life insurance policy loan outstanding or not. But it will vary from company to company.

Another tax benefit is the fact that distributions from a life insurance policy in retirement will have no federal income tax, no state income tax, no Social Security offset tax, and will not be counted towards your contribution for your Medicare premium. That’s four taxes that you will not have to pay if you access your money through your policy in the proper way.

With a life insurance policy, all of the premiums that you pay into the contract are accessible on a tax free basis. It’s basically a return of premium. Anything that grows over that contributed amount is going to be fully taxable as income, but you could get around that by accessing it through policy loans after that basis is used up.

So recapturing your cost basis is actually called FIFO. First in, first out. The first dollars you take out are considered the first dollars you put in, which would be your cost basis. Which is a huge benefit.

What are the tax benefits of life insurance? The money goes in with after tax dollars, the money grows on a tax deferred basis. You can access the money through the loan provision on a tax favored basis. When you take distributions in retirement, the first dollars out are considered the first dollars you put in, which means you can recover the money you put into the policy on a tax free basis.

Then in retirement you can over your basis, you can take money out through the loan provision and again, avoid the taxes, state income tax, federal income tax, Social Security offset tax, no increase in your Medicare premium. Then when you pass away, the death benefits pass outside of probate, in most states, and in most states pass outside of state inheritance or estate taxes.

Finally, when you die, the death benefit goes to your name beneficiary on a federal income tax free basis. And here’s the point It’s not about rate of return, although the rate of return is really strong. It’s about maximizing what the tax code allows you to take advantage of.

So let’s summarize where we are so far. You put money in a life insurance policy with after tax dollars, the money grew on a tax deferred basis. You are able to access it through the loan provision on a tax favored basis. You put the money back in, you took it back out again however often you want.

Now you go to retirement time and guess what? No state income tax, no federal income tax, no Social Security offset tax, no increase in Medicare premium. So we got you through into retirement with tax advantages and now you pass away. The death benefit passes to your name beneficiary on a tax free basis. And in most states, the death benefit is not counted towards probate and it will pass outside state inheritance or state estate taxes.

Remember, it’s not how much money you make. It’s how much money you keep that really matters. 

Optimizing Your Cash Windfall to Efficiently Boost Your Life Insurance Policy

When a life insurance contract is issued, a lot of times there isn’t a lot of built in flexibility within the contract. So when people come into windfalls, whether it’s an inheritance, a bonus at work, or a raise, and they have extra money and want to put it into the policy, you may be wondering where does it go? How do we get this money securely in our life insurance contract?

When people come to us and say, “Hey, I have a windfall of money. I got a bonus at work, an inheritance, a raise. I need to put this money somewhere and make it as efficient as possible.” We’re trained to look at things through the lens of control with full liquidity use and control of that money along the way for your upcoming financial goals, as well as your ultimate goal of retirement and leaving a legacy to your family.

If you already have a life insurance policy, you may be wondering, How do I put that money into the policy in the most efficient way possible? We call this a hierarchy of policy payments. 

First and foremost are base policy premiums. In the early years of your policy, your cash value will not increase as much as the premium you deposit into the policy. However, as time goes by, the policy becomes more efficient as far as the base premium is concerned, meaning that your cash value increase can be as much as two, three, four, five, and I’ve seen it as high as eight times the premium.

You see, these policies are designed by actuaries. These policies are required to get better and better every single year. So by funding that base policy, you’re ensuring you’re going to get the most bang for your buck over the long term. It’s not a get rich quick scheme.

The second place in order of hierarchy is to pay the paid up additions rider. This will allow you to maximize the efficiency of the policy, get you the biggest bang for your buck as far as contribution and cash value increase, as well as putting you in a position to solve your short term, mid-term and long term goals.

Now, with the paid up additions rider, it has to be issued with the contract. If you have a contract that doesn’t have a paid up additions rider or a contract that already has the paid up additions rider that’s paid up, meaning you can’t put any more in it, you’re not going to be able to get around that without additional underwriting.

Many policies that are designed specifically for the infinite banking concept or for cash value accumulation include a paid up additions rider of some sort that goes from 4, to 10, to many years beyond. However, it will be determined by the terms in your specific contract.

The third order in the hierarchy is to pay the policy loan interest, assuming you have an outstanding policy loan. If you do have this, the third place in order of hierarchy is to pay the policy loan interest. You state policy loans are unstructured, meaning there’s no repayment terms.

However, with a life insurance policy loan, typically you’ll receive a bill for the loan interest somewhere around your policy anniversary each year. Now you do have the option of paying it back. But if you don’t, it’ll accrue right onto the loan balance. Assuming there’s enough room in the policy to absorb that loan interest.

And that brings us to the fourth and final area in the hierarchy, and that is to pay the loan principal. You see, as long as you’re paying the premium and the paid up additions rider and the policy loan interest when you pay off the loan really doesn’t matter. That’s a personal issue.

You can make the repayment program fit to your cash value or to fit to your needs. And once you decide how you want to pay it back, you can change your mind as far as how you want to pay back that loan in mid-stream, so to speak, and make it a longer repayment program or a shorter repayment program based upon your cash flow.

If you recently came into money, whether it be from an inheritance, a bonus at work or a raise, you may be wondering how you should be applying that to your life insurance policy. Well, there’s a specific hierarchy, an order in which you should be applying these payments to your policy. The first is towards your policy base premium. Number two, policy paid up additions, if applicable. Number three, if you have a policy loan, you should be paying off your policy loan interest. And number four, and the final place you should be putting money is toward your policy loan principle.

Now, if you have the first three tiers of the hierarchy taking care of: the premium, the paid up additions and the loan interest, taken care of, it may make sense in your situation not to repay that policy loan and instead take out a new policy so you can have two policies working, compounding and growing for you simultaneously.

You see, when it comes to compound interest, like is experienced in these life insurance policies, there are two factors time and money. And if you have the money, we know that you could never cover the time. So the best time to start a second policy may be right now. 

If you have a windfall and you’re looking at ways to apply the windfall to your life insurance policy, schedule your Free Strategy Session today.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.

4 Steps to Cash Control

As a business owner, you know that cash flow is the lifeblood to any business. If you don’t have cash flowing through your business, it could feel suffocating.

Whoever controls your cash flow controls your life. And that’s why we focus so much on control at Tier 1 Capital. In fact, it’s our mission to help as many businesses as possible to make the best financial decisions possible. And it all starts and ends with one thing, and that is control.

According to a recent survey by Intuit, 61% of all businesses around the world struggle with cash flow. And 69% of business owners admitted to sleeping less or losing sleep due to cash flow concerns. This is exactly why we’ve put together a four step process to put you back in control of your cash flow.

Step number one, we identify where you’re giving up control of your cash flow unknowingly and unnecessarily. Unknowingly means that you don’t realize you’re doing it and unnecessarily means that working together, we could fix it.

Second step is the hardest step in the process. You got to stop doing what you’ve been doing to give up control of your cash flow. But it’s the hardest step because these are strategies and techniques you’ve been using all of your life, and you may have an emotional attachment to a lot of those strategies.

But keep this in mind, the thinking that got you in this situation is not the same thinking that’s going to get you out. It all starts with a simple paradigm shift.

Step three: You start to save in an entity where you own and control, meaning that you could access the money on your terms whenever needed, and the money will always continue to be working for you, meaning that it will earn uninterrupted compounding of interest.

Think about it this way. What impact would it have on your peace of mind if you were able to control the financing function in your life? Not banks and not creditors. Wouldn’t that be a huge burden off of your shoulders? We think so.

The fourth step is where the magic happens. We teach you how to borrow against your own capital and pay interest back to an entity that you own and control. Because let’s face it, we finance every single purchase we make, whether we pay cash and give up interest or finance and pay up interest. This solution allows you to regain control of that financing function in your life so that you are the borrower and the lender and you take out any middle man.

Conventional wisdom teaches us that debt is bad and it’s not uncommon for business owners to believe this, to pay off their debt as quickly as possible, to pay cash for major purchases. But what does that do? It gives away opportunity cost. Every time you spend a dollar unnecessarily, you not only lose that dollar, but you lose what that dollar could have potentially earned you for your business. So we work hard for profits and then we give them away because we’re focused on the wrong things.

Let’s face it, we’ve all been conditioned to give away control of our profits. We pay off our debt quickly. We pay cash for purchases. We fund our retirement with qualified retirement plans. And what do these strategies have in common? We have no control over our money, and we have no access to our money. It’s always like we’re chasing our tail to get control of cash.

But the answer is literally hidden in plain sight. Stop giving away control of those profits. What we found is that when you stop giving away control of your profits, that’s where you can start enjoying a better life for yourself and grow your business.

So what is the solution? It’s real simple.

Stop giving away control of your profits. When you do that, you’ll have more cash flow. When you have more cash flow. You can redirect some of that cash flow to start building cash assets. And when the cash assets get large enough, you can borrow against those assets and pay interest back to that entity that you own and control. After that, you just rinse and repeat throughout your entire business lifetime.

Then, when you go to retire, you can access that cash on a tax favored basis to supplement your retirement. The retirement income is just one piece of the pie of how this tool could be deployed in your business. It could also help with business succession, business exit strategies and key person retention.

Remember, it’s not how much money you make. It’s how much money you keep that really matters.

Combating High Inflation and High Interest

Small businesses are currently facing the twin challenges of high interest rates and high inflation. They’re paying more for loans and raw materials while trying to maintain a good quality of life for their employees, all while trying to grow their business.

Things are moving quickly. In November of 2020, inflation was quoted at .75, less than 1%. But let’s take a step back in time what was happening in November of 2020? Well, stimulus checks had been sent out, there was PPP money sent out to business owners. EIDL was on the rise and overall the government was pumping as much money as they can into the economy to keep inflation that low and stop us from feeling the effects of the pandemic.

But let’s take a look at the results of this government interference. In August of 2022, inflation had risen to 9.2%. By the end of December, it was down to 4.6%. But here’s the point. Inflation has increased a lot. We know that every time we go to fill up our gas tank, we know that every time we go to the grocery store, we see inflation on a daily basis. And couple that with the fact that small business owners often have to pay 2 to 3 points more on their business loans.

In February of this year, 2023, the prime interest rate rose from 3.25% percent to 7.75%. This could have a huge impact on small businesses if they’re not flush with cash and they’re forced to finance to run their business or grow their business.

In fact, the last time the prime interest rate was this high was during the Great Recession of 2008. While we have no idea what’s going to happen in the future, we can use history as a guide. During the 2008 recession. 1.8 million businesses closed their doors and 8.7 million people lost their jobs. 

During the last three recessions 91% of business owners were suffering. However, the key is that 9% thrived during those times. Success also leaves clues.

So here’s the question, how can you position your business to take advantage of all the bad news that might happen with a pending recession? Let’s face it, no one knows what’s around the corner. We could guess. We could estimate. We could say what we think. Regardless, you need to be in a position where you can thrive, having the flexibility to pivot to whatever life throws our way. 

We would argue that that comes with being in control of your cash and your cash flow, not dependent on banks not saving in places where you can’t access that money, but rather having a pool of cash that you own and control that you’re able to access for when you’re ready to grow your business, perhaps during the next recession, whenever that may be.

If you’d like to learn more about our process, we have a free business owners guide right on our homepage.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.

The Risks of Certificates of Deposit

You may have been noticing that banks have been offering relatively high interest rates on short term CDs, and that’s because of the inverted yield curve. But what risks are involved and what risks should you consider when looking into purchasing a CD.

Let’s start at the beginning. What the heck is an inverted yield curve and what effect does it have on our economy? Typically banks or investment firms will offer higher interest rates for a longer duration, whether it’s a CD or a bond.

You’re leaving your money with the bank longer, they’re going to have more time to capitalize and invest that money. You should be rewarded adequately for the commitment of leaving your money with the bank for that extended period of time.

However, with an inverted yield curve, short term rates are actually a lot higher than the long term rates. And what does that mean?

Well, it’s basically the bank saying, “Hey, we feel comfortable committing to this higher interest rate for the short period of time based on the economic outlook. However, past this amount of time down into the future, we don’t feel so sure that the interest rates are still going to be this high. We’re not going to offer you as high of a rate of return”.

But what are they actually doing? By advertising these high interest rates for short term products, they’re able to lure in the consumer to tie up their money with the bank while the interest rates are high.

Now, here’s the problem. Let’s say things are good for the next six months, but you have a nine month CD and after six months, the economy tanks. So what’s the Fed going to do? They’re going to lower interest rates. Why? Because they want to get more liquidity back into the economy.

And now here’s the problem. When you get to renew your nine month CD, let’s say the rates are half of what you’re currently getting. So you’re sort of getting tricked to tie up your money for a short period of time so that the bank doesn’t have to be stuck paying a higher interest rate for a longer period of time.

Basically, they’re saying we don’t think the economy is very stable and it’s not stable for a long period of time. We don’t know what’s around the corner and neither do we as consumers. So they’re protecting themselves. But what are you doing to protect yourselves, to make sure that your wealth isn’t dependent on the economy, whether it’s in the market or in a CD?

You see, the system is set up to benefit the banks and the financial institutions at our detriment. We as individuals or small businesses pay the price for all of the security that the financial institutions want to embed in the system for themselves. And think of the massive marketing and indoctrination that’s going on from these financial institutions that’s teaching us to do things the way that benefits them and again, to our detriment.

According to a 2022 study conducted by Northwestern Mutual, only 35% of Americans actually are working with a financial advisor. So if you are one of the 65% of Americans who aren’t and you’re doing it yourself, you could be at a severe detriment when you put all of these factors together.

The easiest way to get someone to do something that’s not in their best interest is to make them believe that it is in their best interest. And a lot of times, unfortunately, that’s what these financial institutions do.

And I’m sure you’re out there saying, “Well, come on, there’s no way. How do they do that?” Well, let me give you an example.

Let’s say you want to buy a house and the interest rate for a 30 year mortgage is six and a half percent. And you sit there and you say, “Boy, that’s a very high interest rate.” And you go to the banker and say, “You know what? Our family has been a customer of this bank for over 25 years. We deserve a better interest rate.”

And they say, “Well, Mr. Smith, here’s what we’re going to do for you. We’re going to give it to you our way. If you take a 15 year mortgage, we’re only going to charge you 6%.” And you sit there and say, “I did it. I negotiated them to a much better interest rate.” No, you did it. You gave them more and more of your monthly cash flow. And that’s what it’s all about.

You see, when you focus on being in control of your money, the decisions that you make with your money become much, much more clear and you are now in greater control of more and more of your money.

They’re able to distract us with interest rates. Is at a high interest rate. Is it a low interest rate? Can I get a better interest rate across the street? Well, that doesn’t really matter. Not too much, at least, because what really matters is how much money you’re giving up control of every single month. Because the more you give up control of your money, the less money you have to save to invest, to reach your goals with as it gets more and more tied up.

If the bank made the same amount of money on every loan, how many choices do you think you would really have? One. So the very fact that the bank offers multiple interest rates and multiple mortgages for various durations indicates that they’re making more on some mortgages and less on others.

Wouldn’t it be great information to find out where they make more money and then stay away from that choice?

So here’s the point. We talked about interest rates. We talked about an inverted yield curve. We talked about how financial institutions get us to do things that are in their best interest by making it appear that it’s actually in our best interest. 

The bottom line is this. If you want to get off the hamster wheel, if you want to stop being controlled by the financial institutions and our government, we have a solution for you. Check out our process laid out clearly in our Four Steps to Financial Freedom webinar found right on our homepage.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.