Business & Personal Finance Articles

Can Life Insurance Help Pay for My Home Renovations?

November 7, 2022

Are you thinking about renovating your home and wondering what the best way to finance that purchase would be? Whether it’s paying cash or taking out a home equity line of credit?

It’s a foregone conclusion, you are going to do some renovations or remodeling around the house. Whether it’s adding on a deck, redoing the kitchen or a bathroom, getting new windows and siding. Either way, remodeling your house is a major capital purchase, and you’ll always hear us say, it’s not what you buy, it’s how you pay for it that really matters.

So the question remains, what is the best way to make this major capital purchase so that you will come out ahead on the other end? Our unique ability is to see things through the lens of being in control of your cash flow or not being in control of your cash flow.

So with every financial decision we look at the question, is this putting you in more control of your money or giving control to someone else and leaving you in a weaker financial position Let’s take a look at how you could be in control of your money and still buy the things you want, like renovating your house.

First, let’s assume you have enough cash or enough savings to pay cash for the renovations that you’re planning on making. So in this scenario, what happens is you have all the cash sitting here that you own and control, and then as soon as you make the purchase, the control is gone, your bucket is empty, and now all that cash is given away to an outside entity.

But what does that really mean for you financially? Well, you’ve drained the tank. You’ll never see the interest you’re not earning on your pile of cash because you drained the tank and it could no longer earn any compound interest for you. We call that opportunity lost.

The second way you could pay for your renovations is to do traditional financing, whether it’s an installment loan, whether it’s a home equity loan, whether it’s a total refi or a cash out refi to pay for the renovations. Either way, you’re asking permission to get the loan and now you have an additional payment to make out of cash flow.

So what this looks like is you had these payments going towards your savings or investments and now you have to redirect that cash flow to pay this installment loan, home equity, loan, mortgage, whatever you chose. So based on what we just said, whether you finance or pay cash, you’re either going to pay interest if you finance or give up your interest if you pay cash.

So the question remains, what’s the best way to pay for your renovation and how can you be in control and continue to earn interest even while you’re using that money for your renovation?

The answer may be a specially designed, whole life insurance policy designed for cash accumulation so that you could build up a pool of cash that you have full liquidity use and control over so you could access the cash through a collateralized policy loan, a contractual guarantee, and still continue to earn continuous compound interest.

Now you’ll have a loan against the policy and you could make payments back to the policy loan and rebuild access to that cash value. So you could use it again in the future instead of giving away control to an outside entity.

So again, looking at things through the lens of you being in control of your money and showing you how to regain control of your money, it’s very simple. You build up a pile of money that you are in control in your life insurance policy. You pledge that, as collateral through a collateralized loan, all they do is put a lean against your policy and they give you a separate loan. Now, when you make a payment, every payment you make increases the equity that you have. You stay in control of the cash. It’s always earning compound interest and you’re in control of the loan payments that you’re making because every loan payment reduces the outstanding policy loan, increases your equity and is completely accessible to you through the contractual loan provision.

Let’s look at this for a second. What’s the difference between building equity in a life insurance policy in the cash value versus, let’s say, building equity in your home? And there’s a very distinct difference, and that is you have guaranteed access to your cash value. There is no ifs, ands or buts or qualifications of any kind to access that money. It’s simply giving an order to the insurance company. “Hey, I want a policy loan against this cash value,” and then they send you the money versus going to the bank and saying, “Hey, I’d like a home equity line.” And they say, “Okay, show me everything you got and prove that you could repay this loan.” It doesn’t work like that with a policy loan, and that is a very distinct difference.

So it basically comes down to this: with a policy loan, you’re giving an order. With a home equity loan, you’re asking permission. Which position gives you more control when you’re giving an order or when you’re asking permission? So when you take a policy loan against your cash value, it basically is giving you the best of both worlds. The aspect of paying cash and financing.

So what do we mean by the best of both worlds? Well, it’s really simple. If you were to pay cash, you would have first had to have saved money. But when you pay cash, you drain down the tank. You don’t want to do that because you’re giving up control to the contractor.

Borrowing against your cash value, you don’t drain down your cash. You still access it through the loan provision, but now you have a payment. But now that payment is yours. Every payment you’re making goes back to reduce the policy loan and increases your equity. So you’re controlling your cash because it’s continuing to earn compound interest and you’re controlling the monthly payment to pay back the loan against your policy. The best of both worlds.

If you’d like to see whether or not a specially designed whole life insurance policy designed for cash accumulation makes sense in your situation. Be sure to visit our website at Tier1Capital.com and schedule your free strategy session today.

On our website, we also have a free web course, The Four Steps to Financial Freedom, where we do a deep dive on exactly how we use this process to achieve our clients financial goals.

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

How Do I Become a Wealth Creator?

November 3, 2022

Have you recently received an inheritance or anticipate receiving one soon? For the past 37 years working in financial services, I’ve seen many people receive inheritances and they generally fall into one of two categories. First, they’re either a spender, or second, a saver.

The first type of person who would receive an inheritance is a spender, and the spenders finances typically look something like this. They start at the zero line, and when it comes time to make any major capital purchase, they’re forced to borrow because they have no savings, they’re at zero.

And so they dig themself a hole in debt and all of their extra cash flow, instead of going towards savings, goes towards repaying that debt and filling in that hole. So when they receive their inheritance, it makes sense that they first, pay off their debt and then would drain down that tank, draining down the rest of that inheritance to make other major capital purchases.

The second type of person who would receive an inheritance is a saver and savers start at the zero line and they save and save and save. But when it comes time to make a major capital purchase, they drain down the tank or reduce their savings back to zero. And then they start saving again for, let’s say, the next automobile or the next major capital purchase.

So if you’re a saver and you receive an inheritance, it would make sense that you would use your inheritance to make major capital purchases and pay cash for everything.

Now, it may seem to you that the saver and the spender are two very different people, but they have something in common, and that whether you’re a debtor or a saver, you spend a lot of time at the zero line and you never get to experience the magic that comes with continuously compounding interest on your money. The other thing that neither the spender nor the saver receive or experience, is being in control of their money. Which brings us to the third type of person who can receive an inheritance. And that’s the wealth creator.

The wealth creator is a very unique individual. They save, as a matter of course, just like the saver. The only difference is, unlike the saver who drains down the tank to make purchases, they continue to earn uninterrupted, compounded interest by borrowing against their savings. And when they borrow against their savings, they’re making their money more efficient.

Now, if you’ve recently received an inheritance or anticipate receiving one soon, you may want to look into becoming a wealth creator. Keep this in mind, the saver, spender, and the wealth creator are all making the same exact purchases. And we say this all the time. It’s not what you buy. It’s how you pay for it that really matters. The wealth creator is still able to make that purchase without draining the tank and without giving up control of their money, all the while making their money as efficient as possible. They’re never jumping off that compound interest curve. That is a huge deal.

If you’re using a specially designed whole life insurance policy with a mutually owned life insurance company, you’re automatically building in a legacy for the next generation and being a great steward of your money.

If you want to make your inheritance work for you, your business, and your family and last for generations. Visit our website at Tier1Capital.com to get started.

Feel free to schedule your free strategy session today or check out our free web course, the Four Steps to Financial Freedom to see exactly how we put this process to work for our clients.

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

How Can I Utilize My Policy Loan Provision

October 31, 2022

Do you have a cash value life insurance policy, but you’ve never accessed the cash value? Well, that’s kind of like having a Ferrari in your garage and never driving it.

Did you know that every single cash value life insurance policy has something called a policy loan provision, that allows you to have full liquidity use and control and access to that cash via a policy loan?

So the questions remain, why would you want to use a policy loan? Why would you pay somebody to access your own money?

Well, it’s real simple. It isn’t your own money that you’re getting. You see, your money will continue to stay in the policy and grow on an uninterrupted compounding interest basis. The insurance company will use the equity in your policy and put a lean against it. They’re going to give you a separate loan outside of your policy so your policy continues to grow. But now you have this extra loan and now you can use it for whatever you want, whether it’s to pay off a bill to buy an asset or just to go on a vacation.

So the next question is, who is showing you how to use this asset? Who’s showing you how to utilize this tool in your financial game plan?

For the past 37 years I can’t tell you how many times people have come to my office and they show me their assets and they have these life insurance policies and they say, “You know, my brother in law sold me this policy. He’s probably ripping me off, but it’s my wife’s brother. So I did him a favor.” At the end of the day, what they don’t realize is that the best asset they have ever owned is that life insurance policy.

It takes a little education and becoming familiar with the ability or what you can do with that policy. But once we show them how to utilize that policy, they never go back and they always want more life insurance rather than getting rid of what they thought was a bad asset.

So think about the assets that you own, whether it’s a bank account, an investment account, real estate or even insurance policy, they were all purchased through a financial institution. But you see financial institutions have rules, and those rules center around getting our money and keeping our money for as long as possible. But what if you are able to maintain full liquidity use and control of your money so that you’re able to achieve your financial goals and still maintain that continuous compounding of interest that we all want so badly so our money could be working for us instead of against us.

Well, that’s exactly what you get with a cash value, life insurance policy. Full liquidity use and control and access to achieve your financial goals. You see, when you’re accessing the cash value in your life insurance, you’re following a simple law of nature. You see, in nature, everything has to flow. And when you are accessing your money, your money is flowing. But when you leave your money somewhere, it is stagnating. And guess what? Wherever you left that money, that institution is earning interest on that money.

The key is to utilize your cash value, to utilize that policy loan provision, that contractual guarantee that allows you full liquidity use and control of your cash value so that possibly maybe you could take that cash and invest it somewhere, so you have the internal rate of return within your contract, as well as an external rate of return on an investment.

Another option to utilize your policy cash value is to take a policy loan to repay debts. Whether that’s a high interest credit card or possibly some student loans. Once you take the policy loan, you now have free cash flow from the payments that were going to your credit cards or student loans that you could redirect back to your policy loan payment. And what that’s going to do is rebuild and reestablish that equity in your policy so that you can access it again in the future. All the time never interrupting the compound interest curve within your life insurance policy.

Let us know how you use your cash value within your policy or if you’ve never accessed it before, and have this Ferrari sitting in your garage. How we can help you the most is to show you how to unlock this stagnant money, how to utilize this asset, how to drive this Ferrari as fast and as far as you want.

If you’d like to get started with our process, be sure to visit our website at Tier1Capital.com to get started today. We show people how to use cash value life insurance policies, whole life insurance policies designed for cash accumulation to achieve their short term, long term and other financial goals.

Feel free to schedule your free strategy session today or check out exactly how we put this process to work for our clients in our free webinar. 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.

Pay Yourself First

October 27, 2022

Nowadays there is so much competition to get in our checkbooks every single month. Between subscriptions, utilities, credit card bills, student loans, rent or a mortgage the competition is fierce. Not to mention the increasing rate of inflation that could be detrimental to our cash flow each and every single month.

Today, let’s look at why it’s more important than ever to pay yourself first.

The Golden Rule in personal finance is to pay yourself first, but the question becomes, how do you do that? There’s never been more competition. It’s never been easier to give away control of your cash flow.

With as many subscription options as we have today, whether it’s a large corporation, a small company, a financial institution like an investment firm, a bank or an insurance company, or the government, they all are experts at getting into our checking account and getting into making sure that we’re paying them first rather than paying ourselves first.

So the question remains, how do we pay ourself first? The answer is simple. It’s to get $1 to do multiple jobs. If you were able to get $1 that you were using to repay a credit card with, to do multiple duties so that it’s also able to continuously compound interest and be working for you at the same exact time, that’s the secret.

Think of this question. What’s the rate of return? I’m getting $1 to do several jobs. The answer is that it’s almost infinite, and that’s the key. Making sure your money is much more efficient than just doing one job. That takes us back to the original question.

How do you pay yourself first? Well, first and foremost, you have to prioritize savings. And it’s really simple, but it’s also very hard. So think of this. I’ll never forget when my son got his first real job after college and after he got his paycheck. He was figuring he was going to make about $2,000. When he got his first check, it was closer to $1100. I’ll never forget what he said to me. He said, “Dad, who in the world is FICA?” And I said to him, “Welcome to the real world, son.”

So again, how do we pay ourselves first when we’re only going to end up with 50 or 55% of what we think we’re going to get in the first place? Well, it’s real simple. You’ve got to make sure that you’re understanding how much you get and also prioritize, and say, “Okay, whatever I get, 10% is going into my savings, could be 5%, could be 3%”, whatever you choose. You just need to start somewhere.

So when it comes to compounding interest, there are two factors and only two. Time and money. We can never get the time we lose back. So it’s important to start saving now, and make a habit out of saving. Save month after month, week after week, and never drain that tank so that you can experience the eighth wonder of the world: compound interest.

When we talk about not draining down the tank, what does that mean? Well, typically what happens is people save with great intentions, and then all of a sudden a disaster hits them. They have a financial or a medical emergency, so they wipe out their savings. Another example is that they’re saving money, and they need a down payment to buy a house. So what do they do? They drain down their savings and use it to pay for that emergency or they use it for that down payment on the house. Well, what happened is you drained down the tank and you stopped compounding interest on that money.

So again, the key is getting $1 to do two things. Have it in a place where you can utilize it to do whatever you need, whether it’s a financial or a medical emergency, a down payment on a house, paying cash for a car, things like that. But also, still make that money continue to grow and earn uninterrupted compounding of interest. Because if you drain that tank and deplete all of your savings, you lose all the opportunity that that money could have earned you. You’ll never see the interest that you don’t earn on that savings. But more importantly than the opportunity, you just lost all the time it took you to build that money up. Now you’ll never get that time back either.

So when you look at a compound interest curve, and in the beginning years you don’t see much growth, keep this in mind. Compound interest is when you are earning interest on the interest. That interest continues to compound and grow every single year. If you continually drain down that tank, knock yourself back down to zero, and start all over again, you’ll never experience the real growth on your money, which takes place in the later years.

It’s so important to never get off that compound interest curve, because by the time you realize the detrimental effects this is going to have on your finances and your ability to achieve your financial goals, it’s going to be too late.

This is where we always say the future you needs to have a sit down discussion with the present you about how you’re using your money, because the present you could really be shortchanging the future you out of a comfortable retirement.

So here’s the key. Pay yourself first and never stop. Pay yourself as a matter of course and never drain that tank. One of the ways we help our clients achieve this goal of paying themselves first is with a specially designed whole life insurance policy designed for cash accumulation. So, they’re able to meet their short term goals of paying off their credit card debt or paying off their student loans, as well as their long term goals, such as paying for a wedding, sending their kids to college, or saving for their retirement.

If you’d like to get started with this specially designed whole life insurance policy for cash accumulation, to help meet your short term and long term financial goals, so that you can save and pay yourself first and never drain that tank. Be sure to visit our website at Tier1Capital.com.

Feel free to schedule your free strategy session today or check out exactly how we put this process to work for our clients in our free webinar. 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.

Is the Death Benefit Better for the Beneficiary?

October 24, 2022

We often talk about the living benefits of life insurance, but we’re skipping out on a huge benefit,
and that’s the death benefit that comes with every single life insurance policy. So let’s start at a very high level. What is a life insurance policy?

Quite frankly, it’s a unilateral contract between the insurance company and the owner of the policy. So what’s a unilateral contract? Well, think of it this way. There are two parties to this contract. There’s the policy owner and there’s the insurance company. The policy owner has one job and one job only, and that is to pay the premiums on time. When the policy owner fulfills that obligation, the insurance company has all of the rest of the obligations.

That is, pay a death claim when the insured dies, make sure that all the other ancillary benefits, whether that be cash value, whether that be disability waiver of premium terminal illness or chronic illness, any benefits that are extra to the policy the insurance company is guaranteed and obligated to deliver.

Now, you can’t just demand a life insurance policy. You must first qualify. And there are two main ways that the insurance company is going to qualify you. The first is medical underwriting. They’re going to look at the insured’s health and determine that they’re healthy enough that the insurance company will take on their risk. The second piece is financial underwriting. And basically what this means is that you can’t over insure someone. The insurance company is not going to give you as much death benefit as you want and they’re not going to give you more death benefit than that person is worth. Just like when you’re insuring a car, you can’t get more money for the car if it gets totaled than the car is worth.

So there are three ways that an individual can qualify for more or a larger legacy or larger death benefit. First is based upon their income, and usually it’s a multiple of their income that they can insure themselves for. Second would be based upon their net worth. If they have a $2 million net worth, then theoretically the insurance company would be willing to issue $2 million of death benefit, and the third would be based upon business needs, whether it’s insuring your business interest or insuring your business debt.

Now that we’ve talked about how to qualify for a life insurance death benefit, let’s talk about why you would want life insurance death benefit to insure your legacy versus buildings, your business, or an investment account for that matter.

The answer is real simple: liquidity, use and control. We talk about it all the time and it’s more important via the death benefit than ever. You see, when the insured dies, it triggers something in the contract and the insurance company is now obligated to pay the death benefit, whatever it may be in that contract.

So keep this in mind. We’ve seen so many times where people pass away and their children have moved out of town and they leave their home to their child who lives four states over. The kid doesn’t want the house. The kid moved to Ohio or Maryland or Massachusetts for a reason. He didn’t want to be here. And because of that, the first thing they’re going to do is sell the house. Well, if the house is worth $200,000 right away, they have to pay a 7% real estate sales tax, plus a transfer tax, plus a probate tax. They thought they were leaving their kid $200,000. It’s only going to be about 150,000 after everything is said and done.

Now, let’s look at if the parent dies with an investment account. Same thing. There’s management fees, there’s liquidation fees. And again, there’s taxes and probate, probably end up with maybe $160,000.

So now let’s look at an investment account. Same thing. They’ve got to pay somebody to manage the money. They got to pay somebody to liquidate the money. They got to pay taxes on it. And it’s going to go through probate.

When all said and done, they’re going to end up with way less than $200,000. Now, if you really want to get sick to your stomach, let’s have the parent die and leave the child a retirement account. Same management fees, same liquidation fees, same probate fees. But now they got to pay income tax on top of it. And that income tax is in the kids tax bracket, not the parent’s tax bracket. So when all is said and done, they’re left with pennies on the dollar.

Well, how does this contrast with a life insurance contract? Well, first of all, it’s a contract between the insurance company and the policy owner. So it doesn’t need to go through probate. There’s no income tax. In most states there’s no state inheritance tax. It’s simply a claim form to the insurance company. And whatever the death benefit states is how much the beneficiary is going to get. So you know exactly how much money you’re passing on to your heirs and you get to determine where that money is going at your death. You’re completely eliminating the middleman. There’s no management fees, there’s no taxes. There’s no probate fees.

Like so many other times, when you’re dealing with an insurance company, you’re giving a direct order. You’re not asking permission. You’re saying, hey, when I die, I want my money to go to this person. And so that person fills out a claim form and they get a check from the insurance company.

Oftentimes when you’re dealing with a life insurance claim, the first money that the beneficiaries are able to get their hands on are from the insurance contracts, not from the bank account, not from the investment account, certainly not from the real estate. This money is going directly to that beneficiary as soon as possible.

And keep in mind, one thing about life insurance, it is the only financial vehicle, the only asset that you will own that guarantees that what you want to have happen will happen, even if you’re not here to see it happen.

So what does that look like? Well, let’s say you’re alive now and you’re young and you have a child and you want them to go to a good college. So you’re saving for retirement. But let’s say you die in five years. How is your child going to afford college now that they don’t have the savings that you’ve been accumulating for them? So one way to do that is to take out an insurance policy to make sure your child has the money to go to a good college, even if you’re not there to see it happen.

Another reason why you’d want to buy life insurance for the death benefit is for income continuation. If you’re a breadwinner or a dual household income, wouldn’t you want to make sure your spouse could maintain their current standard of living even if you’re not there working with them?

Another reason to buy life insurance is if you’re a business owner, and we see this so often, where a business owner will insure his business interests or the value of his business interest
so that his spouse doesn’t have to run a business they’re not familiar with. They can utilize the cash to create the lifestyle that the business created when the husband was operating the business.

So it all comes down to, once again, having full liquidity, use and control of your money even after your death.

If you’d like to get started with a life insurance policy to protect your family or your business, visit our website at Tier1Capital.com to get started today.

Feel free to schedule a free strategy session and get right on our calendar.

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

Ready to Expand Your Financial Knowledge Circle?

October 20, 2022

You hear us talk about wealth transfers and how you’re giving up control of your money all the time. But what does that actually mean? Where do we find this money and how? Where is there money hiding in plain sight in your financial life?

Let’s face it, we’re all trying to make the best financial decisions possible. When we wake up in the morning, we don’t say, “Hey, how could I screw up my finances today? “No, we say, “How can I move myself forward financially? How do I get from point A over here to point B, Financial security?”

Everything we do, we think, is moving us forward. But here’s the question. If what you thought to be true turned out not to be true, when would you want to know? Wouldn’t the answer be as soon as possible, so you could start on the correct path to financial freedom? A path where you have complete liquidity use and control of your money so that you don’t have to ask permission to access your money to make purchases in your life.

Let’s face it, every purchase we make is financed, whether we go to a bank for a loan or we pay cash. But what if there’s a better way, a way that leaves you in control of more of your money for a longer period of time?

All the decisions we make are based on the knowledge and the information that we have at that time. We call this the circle of knowledge. This circle represents all of the information that exists in the universe today. It’s everything that’s known by everyone in the universe. Your slice may just be a small slice of everything.

Then, there’s another slice of that circle of knowledge, and it represents everything that we know exists, but we just don’t know anything about it. It’s things like brain surgery or nuclear physics.

What we often forget is that there’s a whole universe of knowledge out there and not one person could know everything in the entire universe. It’s simply impossible. What we’re able to do is leverage the knowledge of other people, that’s the easiest way to expand your slice of knowledge.

So here’s the problem. All of the rest of the information, the rest of that circle is information that we don’t even know exists. It’s stuff that we don’t even know that we don’t know. And this is the information that can be holding us back from making huge strides personally and financially.

So how does this relate to the money we’re giving up control of unknowingly and unnecessarily? Think of it like this. The information that we don’t know exists is stuff that is literally sitting in our blind spot. Now, when you’re driving down the road and you look in the rearview mirror and you see nothing, and then you look in the side view mirror and you see nothing. And then you peek your head around and you see a 4,000-pound truck traveling down in the lane that you wanted to turn into.

That’s your blind spot. And this could be your blind spot financially as well. The information that we don’t know exists is stuff that is literally sitting in our blind spot. That car didn’t just appear out of nowhere. It was there the whole time, we just didn’t see it until we changed our perspective.

So if the decisions we’re making are based on the information that we have, the information we know and believe to be true, the best way to make better decisions could be as simple as expanding your circle of knowledge, making your slice a little bit bigger, and creating new beliefs that could actually move you forward financially instead of what the conventional wisdom is telling us to do.

It’s very simple. There are only three ways we can expand our knowledge. The first is the experiences we receive by the places we go. The second is the knowledge we gain by reading books. And the third is the transfer of knowledge from one person to the next.

That’s where we come in. We could help you because the key here is the things that might be in your blind spot are literally in the slice of the circle that we know, and we know that we know it. If you meet with us and we share our piece of the circle of what we know, it could help expand your circle of knowledge so you can make the best financial decisions for you.

There are five major areas of wealth transfer that we could help identify where you’re giving up control of your money unknowingly and unnecessarily, with 100% certainty. Those five areas are…

After we identify these areas where you’re giving up control of your money. It’s really simple. This is money that’s literally hiding in plain sight. It’s in your cash flow. You think it’s moving you forward, but it’s actually holding you back. Once we go through this process, you’re able to utilize that money to move you forward.

If you’d like to get started with a custom plan on how to move yourself financially forward, visit our website at Tier1Capital.com to get started today.

You could schedule a free strategy session if you’re ready to speak with us or we have a free webinar where we do a deep dive on our Four Steps to Financial Freedom.

Feel free to click that button and register for our webinar today.

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

How Buy-Sell Life Insurance Can Benefit Your Business

October 17, 2022

There are a lot of things to consider as a business owner with a business partner. And one question that should be answered by any successful business owner is what will happen when my business partner dies?

When you go into business with a partner and they die, you’ll have two choices without a properly drafted agreement. Those options are really simple.

1. Option one you’re now in a partnership or in business with your former partner’s family.
2. Option two, you’ve got to come up with enough cash to equal the equity interest that your partner had.

So the simple solution is to draft a buy-sell agreement, which will detail exactly what you want to have happen when each partner dies. The buy-sell agreement is an obligation that literally tells what has to happen when one of the partners passes away. This brings us to the second part of buy-sell planning, which is funding. Where’s the money going to come from to buy out the partner? Do you have enough cash on hand or are you going to have to liquidate assets in your business? But if you liquidate the assets, how is your business going to function? This brings us to our next option and the best option for funding any buy-sell agreement, which is life insurance purchased on each of the partners that would produce liquidity at the time of death.

The buy-sell life insurance policy is the only option where the problem, the death of the partner, triggers the solution: instant liquidity to buy out their shares. Think of it this way, if you pay cash, you’re giving up that cash amount plus the interest that cash could have earned. You’ll never see the interest you don’t earn on that money. If you pay out over time it’s the same thing. You’re giving up control of the money, plus what that money could have earned. That would be an installment sale. But the third option, life insurance literally gives you a discount. You should never pay more for the business interest than you do for the insurance. The insurance should be discounted from what the principal or the death benefit is.

So the buy-sell agreement creates the obligation. The obligation can be paid either in cash if you have the money, in which case you’re giving up control of the cash, plus what that cash could have earned: opportunity cost. The second way you can buy out your partner is to borrow money from a bank to pay for his business interest. But will you qualify for a loan when you’re down one business partner? Will the business still continue to perform at peak level once that business partner is gone? And the third way is to buy life insurance. Life insurance could literally give you a discount on the amount of money that you need to buy out the partner. Often people look at insurance premiums as a cost, an obligation to dish out money to the insurance company every year. And no one wants to do that. But a simple reframe could shift it into an asset.

First of all, you have full liquidity use and control of any cash value via the policy loan provision that you have access to throughout the policy’s life. And number two, once your partner dies, it triggers an automatic death benefit to fund the problem of the buy-sell agreement. Your obligation to buy out your partner is solved with a snap of a finger. The event that triggers the problem, the death of a partner, is also the event that triggers the solution: life insurance death benefits.

I can’t tell you how many times I’ve seen very successful businesses, businesses that have been around for 40, 50 years that never address the buy-sell issue or they had a buy-sell agreement and it wasn’t funded. I could tell you of a manufacturing company been around for over 50 years – they never addressed the buy-sell issue. When one of the partners died, they didn’t have enough money to buy out the partner, so they had to borrow money. They borrowed money in 2005. Well, when the financial crisis hit, business went down. They didn’t have enough cash flow to pay for the loan and ultimately went bankrupt. That business had been around for over 50 years and went out of business like that because they never addressed the buy-sell issue.

It’s our mission to help as many families and businesses as possible to make the best financial decisions possible. If you’d like to get started with this conversation today, visit our website at Tier1Capital.com to schedule your free strategy session where we could do a deep dive into your situation and how we could meet your needs with a buy-sell life insurance policy.

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

How to Take Advantage of Compound Interest

October 13, 2022

Oftentimes people say to us, “Why would I pay interest to an insurance company when I can just pay cash?” Here’s the secret. Every purchase you make, whether you finance or pay cash, is financed. You’re either paying interest to a bank or credit card or losing interest by draining your tank.

Nelson Nash shared with me his four cardinal rules of finance and rule number one was think long term. And as I’ve had a chance to reflect on that, I’ve come to understand and appreciate
exactly what he meant.

Think long term? He was referring to compound interest and more importantly, uninterrupted compound interest. So the key is how can we have uninterrupted compound interest and still take care of all of the things in life that come up; paying for weddings, buying cars, medical emergencies, etc. And how do we continue to earn interest on our money and still take care of all of these issues?

Let’s take a look at what compound interest is. Basically, compound interest is when your interest earns interest. Albert Einstein once called compound interest the eighth wonder of the world. It’s very simple. There are only two factors that affect compound interest: time and money. And we can never get time back. That’s why it’s so important to start now and never drain the tank. Never pay cash for major capital purchases because you’ll never see the interest you don’t earn on that money. If we’re growing our savings but then we have to drain down our savings in order to make a purchase or to pay for an emergency, we’ve just violated thinking long term and we interrupted compounding of interest.

This is where borrowing money from an insurance company could actually help you make your money more efficient. How? Because we’re getting a collateralized loan, and that basically means our money never leaves our policy. Our money continues to earn uninterrupted compounding of interest, and we have a separate loan from the insurance company that we pay down. As we pay down that loan, our equity in the policy increases and that’s the secret to using other people’s money and taking advantage of uninterrupted compounding of interest. That leads us to our next point.

What is the difference between compound interest and amortized interest, and why would it make sense to leverage other people’s money at a cost when you have the cash available? Why not just take your cash and make that major capital purchase? Quite simply, compound interest grows on an increasing balance and amortized interest is charged against a declining balance. That’s why you actually earn more interest on a lower interest rate when it’s compounding, then you’ll pay on a higher interest rate for an amortized loan.

If you look at any loan, for example, a mortgage, you’ll see that in those beginning years, a ton of your payment percentage is going towards interest. But as that loan matures, more and more is going towards breaking down that principal balance on your loan. This is why you could earn more interest at 3% over a period of time compounding than you’ll pay amortized over that same period of time at 5% interest being charged. It’s a crazy phenomenon that a lot of people don’t understand. That’s why they’re giving up control of their money to pay cash for major purchases.

I’ll never forget about 25 years ago. I was speaking with the president of a bank and I explained this concept to him, the difference between compounded interest and amortized interest. He says, “Yeah, yeah, yeah, I understand.”, but he didn’t fully understand this whole concept. The difference between compound interest and amortized interest is the basis of the banking industry, yet this CEO of the Bank had no clue.

If you realize the power of compound interest, you would never drain the tank. You would want to maintain as much control over as much money as possible for as long as possible. That’s the key. That’s why you should always borrow against your insurance policy, gladly pay the interest to the insurance company because your money is continuing to earn uninterrupted compound interest for the duration of your ownership of that policy.

If you’d like to get started with the whole life insurance policy designed for cash accumulation,
so you could earn uninterrupted compound interest on your money, or so you never have to drain the tank again, be sure to visit our website at Tier1Capital.com to schedule your free strategy session today. Also, if you’d like to learn exactly how we put this process to use for our clients, check out our free webinar, The Four Steps to Financial Freedom, where we do a deep
dive on exactly how we put this to work.

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

Are you Unknowingly Giving Up Control of your Finances?

October 10, 2022

Do you make a great income but still feel stuck financially?

Well, you’re not alone.

Most of our clients don’t understand how to make their money as efficient as possible. That’s where we come in. We find money that’s hiding in plain sight, that people are giving up control of unknowingly and unnecessarily.

If you’ve ever met with a financial advisor, traditional financial advisors are really good at pointing out problems.

“You don’t have enough money saved for your kids to go to college. Therefore, you need to save more for college.”

“You don’t have enough money to fund your retirement income. Therefore, you need to save more money for retirement.”

But the thing is, you’re probably doing the best you can with what you have, and if you could save more, let’s face it, you would be saving more. The question is, how to do it?

This is exactly what makes us unique. We’re trained to identify where you’re giving up control of your money unknowingly and unnecessarily. And these are two keywords. Unknowingly, meaning you don’t realize you’re doing it. And unnecessarily, meaning a simple shift, sometimes just in perspective, can change what you’re doing that’s actually holding you back. It’s our mission to help as many people as possible make the best decisions possible financially, and oftentimes that means making their money work more efficiently.

What does it mean to make your money work more efficiently?

Well, it means putting your money to work for you, not the government, not the banks, and not Wall Street. Maintaining control of as much cash flow as possible is what will move you ahead financially. It’s not enough to point out a problem. It’s not even enough to offer a solution. What makes us unique is that we actually help you find the money within your current cash flow to pay for the solution. Basically, we would have minimal or no impact on your current cash flow to solve a problem and provide a solution.

There are five major areas of wealth transfer where we look for these inefficiencies in your personal economic model.

1. Taxes
2. Retirement
3. Mortgage
4. Education
5. Major Capital Purchases

Identifying these five areas is literally how we find money that’s hiding in plain sight. Ultimately what happens is we can provide you with a solution to your problem with minimal or no impact on your current cash flow.

Let’s face it, none of us wake up in the morning and say, “Hey, how can I hold myself back financially today?” No, we think we’re making the best decisions that would be moving us forward. But what if what you thought to be true turned out not to be true? When would you want to know about it?

If you’d like to get started with our solution to find the money within your current cash flow so you’re able to achieve your financial goals sooner, visit our website at Tier1Capital.com to schedule your free strategy session today. Or if you’d like to learn exactly how we use this process to identify inefficiencies in the cash flow model, check out our free webinar where we go into 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.

Is having a paid-up rider worth it on my Whole Life Insurance Policy? | Tier 1 Capital

October 6, 2022

Are you thinking about buying a whole life insurance policy and wondering if it makes sense to add a paid-up additions rider? If that sounds like you stick around because we’re going to go over exactly why it may make sense to add that rider to your policy.

First of all, you may be wondering what in the world is a paid-up additions rider.

Quite simply, it’s a rider under the umbrella of a whole-life policy that allows you to put extra cash into the policy. That extra cash buys a paid-up additional life insurance policy. Think of it as a single premium whole-life policy under the umbrella of your whole-life policy.

So basically with this rider, you’re able to build up cash value quickly in the policy and no further premiums are going to be due to support that death benefit.

But how would that benefit you as a whole life insurance policy owner?

The first part of answering that question is that we have to step back and look at what a whole life insurance policy looks like without the paid-up additions rider. And in general, most whole-life policies have zero cash value in the first year, zero cash value in the second year, and very little cash value in the third year. So it’s not really efficient on its own without the help of a paid-up additions rider. That’s mainly due to the fact that the insurance company has to pay for setting up those policies.

There are a lot of expenses behind the scenes that need to be supported, and the insurance company takes care of those expenses upfront before building the cash value in those whole life insurance policies.

It’s a lot like building your own business. In the first few years, you’re not going to see any profits because you need to get that machine working efficiently. By design, a whole life insurance policy becomes very efficient after the fourth or fifth year. From that point forward, it literally gets better and better because, by design, the insurance company has to reserve more money to pay for the second promise, which is to have the face amount of the policy in cash at the age of maturity.

So by adding this paid-up additions rider, especially in the early years, we’re able to build up that cash value more quickly within the policy. You may be saying, “Olivia, I don’t even want to loan against my policy. I just want death benefit for my family, for my whole life.”

And I would make the argument that the paid-up additions rider still makes sense, even if you don’t plan on loaning against your policy. And here’s why.

The paid-up additions rider could give the policy a lot of flexibility down the line. You could think of it as prepaying premiums, in a sense, and that your policy has this extra cash. And if you become in a cash flow pinch down the line and can’t pay your premium, or can’t afford that cash flow to pay the premium, you could take a loan or surrender against that paid-up additions rider to fund those premiums. Your policy then remains in effect and at maximum efficiency.

One thing we’ve learned over 37 years in the financial services business is that life happens and things happen beyond our control that prevents us from being on a straight line and doing the things that we said we were going to do 20 years ago or ten years ago or even two years ago. Because of the paid-up additions rider, you’re literally building in flexibility for future premiums.

The last thing you want to do is five years down the line after this policy has been issued, say, “Hey, I don’t have the money to fund this premium and I’ve already paid all these other premiums. I’m just going to surrender the policy.”

After five years there’s not going to be a lot of cash value in that policy, and you’re going to lose all of the premiums paid and all of that death benefit forever.

And here’s the point.

You know, we had mentioned earlier that the policy becomes very efficient after the fourth year. So think of it this way. Right when the policy is becoming more efficient, let’s say you have a cash flow issue and you can’t make the premium. Having had the paid-up additions rider could give you some premium relief.

But think of it this way, if the policy becomes more efficient after the fifth year and it’s going to get better every year after that, it’s sort of like, the worst time to own the policy is in the first four years. You go through that and now just when it starts to get good, you walk away from it. You don’t want to do that. To walk away from a policy in the fifth year or later is analogous to buying a ticket to a movie, buying your popcorn and your soda, sitting through the previews, and just when they say, “Now for our feature attraction,” you get up and walk away. You would never do that and we would never suggest that you do that with a whole life insurance policy.

If you want to get the most out of your whole life insurance policy, you’re definitely going to want to add a paid-up additions rider of some sort. It acts as a bridge, so it takes these inefficient years and makes them more efficient. And after the policy becomes efficient, you could take off that rider and reduce the cost of the premium. But if you want the flexibility of being able to make more choices down the line and ensure the life of your policy, you’re going to want to add this rider.

If you’d like more advice on this, be sure to check out our website at Tier1Capital.com to get started. We have a button for a free strategy session or a web course on exactly how we use this process to make our clients’ cash flow more efficient.

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

Valuable Finance Insights from Tier 1 Capital

What does it mean to make your money work more efficiently?