When people find out how powerful, specially designed whole life insurance policies designed for cash accumulation are, oftentimes they want to put in as much money as possible on a monthly basis. Today we’re going to answer the question of how much premium is too much premium?
Just the other day we got a phone call from a client and they said, “Hey, I would really like to run all of my lifestyle expenses and all my major capital purchases through this policy. Is that possible and what would the benefits of that be?” In order to answer that question. We need to first step back and take a look at how things are done normally without the infinite banking concept or without a specially designed whole life insurance policy.
So every week or every month, money flows into your life. Money flows into your household or to your business. It could be your income from work, your income from your business. It could be passive income from real estate or other investments. It could even be an inheritance. Money comes into your life, and from there you pay your expenses. So think about it. Once the money gets into your account, into your checking account. There’s only four things you can do with it.
Number one, you could spend it.
Number two, you could save it.
Number three, you could invest it.
Or number four, you can defer it into the future through a qualified retirement plan. Things like IRA’s, 401K’s, 403B’s are examples of qualified retirement plans. And with those, you defer the taxes into the future.
Another word for defer is postpone, so that money comes into the account tax free. But when you take it out, it gets taxed.
The key here is you’re not necessarily saving taxes. All you’re doing is postponing the tax into the future when hopefully you’ll be in a lower tax bracket. But that begs the question, is that really what you want? Do you really want to be in a lower tax bracket in the future? And if you are, wouldn’t that indicate that you weren’t really successful at saving money?
So now that we’ve identified the four things that could happen to your money once it comes into your life, let’s just focus on, the spending aspect. Once what money comes into your checking account and you spend it on your lifestyle, necessary expenses, your mortgage, your rent, that money is lost and gone forever. And what we mean by that is you no longer have the opportunity to earn interest on that money.
So money comes into your life and you use it for lifestyle. You make any type of expenditures, regular bills, etc. Once you do that, the money’s gone, never to return. So what can you do to change that? To make it advantageous to basically pay your bills?
Well, it’s like this. When the money comes in, take a portion. Not all of it. Take a portion of it and put it aside in a specially designed life insurance policy and then you could access that cash value through the loan feature to pay for major capital expenditures like paying for a car, a vacation, or maybe your children’s college education.
The key here is you got to make payments back. But once that policy is built up and capitalized, maybe you’ll be in a position where you can save more money and start a second policy or a third policy. And then as those policies build up, then you’ll be able to access more and more of the cash value through the loan feature and utilize that to offset some of your lifestyle expenses. So this process allows you to both make your regular purchases and save so you’re never draining that tank and you are able to earn uninterrupted compound interest on your money. Because once you drain that tank, you’ll never see the interest you don’t earn on that money.
So now you always have a portion of that money working for you rather than for someone else. A way this could practically be implemented in your life may be paying off credit card debt. Maybe you have a credit card debt and you’re paying as much as you can every month and you’re putting hundreds or thousands of dollars towards this credit card debt, trying to knock it out.
What if instead, you took that excess payment, put it towards the policy, and built up cash value to then repay the credit card debt with a policy loan? Then as you repay the policy loan, you’re rebuilding your own capital instead of Visa’s or MasterCard’s.
So let’s back up to the question we started with. How much premium is too much premium? And it’s all about your cash flow. The last thing you want to do is overextend yourself with a monthly premium payment and not be able to sustain this policy.
Once you start a policy, you never want to get rid of it because the longer you have it, the better it gets. Most of the big benefits are on the back end. Nelson Nash used to tell me, “Tim, this is not a get rich quick type of strategy. This is a long term.”
He used to say, “Remember, I was trained as a forester. Foresters think 70 years in advance.” I may not be here, but somebody will. And if we set this up properly, somebody can benefit dramatically from that planning that you’re doing today. But the key is you’ll also be able to have access, liquidity, use and control of that money and continue to earn dividends and uninterrupted compounding of your money.
So the answer is, it will depend on your specific situation, your cash flow coming in, and your monthly expenditures that aren’t really changing things like your utilities, your food bill, your mortgage. You don’t want to run everything through the policy, but you have the ability to run some major capital purchases through the policy.
If you’d like to get started and learn how to put this practice to work for you and your specific situation, we’d be happy to talk to you. Hop on our calendar at Tier1Capital.com to schedule your free strategy session today. Or if you’d like to learn more about how we put this process to work for our clients, check out our 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.