Debt Management

Smart Finance Tips for the Holiday Season: Avoid the Credit Card Hangover

The holiday season is officially upon us. Let’s talk about how to manage spending and how to finance the holiday season because, for many Americans across the country, the holiday season can feel like a major capital purchase.

So how do we make those purchases as efficiently as possible to keep our family in a safe, secure, and moving forward financial position? Let’s start by defining what a major capital purchase is.

We define it as anything you can’t purchase with monthly cash flow, such as the holidays. There are a lot of gifts, there’s a lot of food and often travel that goes into the holiday season. It’s important to make sure your money is working as efficiently as possible, especially during this time that could feel overindulgent in a way.

One of the things that creates the post-holiday hangover is you’re stuck with credit card bills. It’s so easy and convenient to buy whatever you need to buy for the holidays and use that little piece of plastic.  Unfortunately, when January rolls around, those bills start rolling in and then you’re hit with the hangover. How in the world do we pay for these things that we already consumed and gave away? There’s no returning the holiday gifts, at least not the ones that you purchase for other people.

In the second quarter of 2023, for the first time in history, American consumers had over $1 trillion in credit card debt alone. Now, we all know how easy it is to get into credit card debt and how hard it could be to get out of credit card debt because the interest rates are astronomical. So even if you’re paying hundreds of dollars per month towards that credit card bill, you could just barely be touching the principal. A majority of that payment is going to Visa or MasterCard.

So here’s one of the big problems that we see so often after the holidays. You get that large credit card bill and you want to get it paid off as quickly as possible. But the problem is all the money that you’re earning, you’re taking and putting it on the credit card balance, So you’re not getting anything new. Unfortunately, it’s zapping all of your cash and your cash flow so that somewhere down the road when an emergency comes up or an opportunity, you don’t have any access to your own money. So what do you do? You go back and use the credit card.

Think about the psychology of this. You’re in a race to get out of credit card debt, only to go back into credit card debt. So here’s my question. Are you making any progress? What’s the solution?

By adding one extra step by first building up a pool of cash that you own and control and that you’re able to access in the future, you’re able to be less dependent on credit for major capital purchases going forward. You could have a pool of cash that you could leverage against, access money, and then start paying and rebuilding that pool of cash instead of paying back Visa and MasterCard.

So here’s the way it works.

You have this pool of cash, cash value in a life insurance policy, you borrow against it to pay off completely your credit card balance in January. Now, you’re not racking up those high-interest rate charges. Right now the current interest rate is somewhere around 5% for a policy loan. But more importantly, now, every payment you make back to the insurance policy is building or replenishing the equity that you borrowed against. So somewhere down the road, when you do have an emergency or an opportunity comes by, now you have access to money that you could utilize to take advantage of the opportunity or to take care of the emergency.

It gives you the best of both worlds lower interest and the cash flow payments are actually building equity for you. At the end of the day, it’s not what you buy. It’s how you pay for it that really matters.

If you’d like to get in control of your finances so that you’re no longer controlled by the system, but rather in control of this process of financing purchases, 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.

Unlocking Your Financial Ferrari: How an Old Life Insurance Policy Rescued a Family from Debt

Do you have a Ferrari in your garage, and you’ve never driven it? Someone recently reached out and they had a 12-year-old life insurance policy sitting doing nothing. This means they had cash value in the policy that’s accumulated over the last 12 years, and they’ve never put that money and deployed it in their financial system before. So we were able to create a plan for them to get out of debt.

You’ll hear us talk often about specially designed whole life insurance policies designed for cash accumulation. However, all life insurance policies have a cash value aspect built into the cake. You see, when you have a whole life insurance policy the insurance company is making two promises. The first is to pay the death benefit when the insured dies, as long as that policy is in force. The second is to have a cash value equal to the death benefit at the age of maturity, which is typically age 100 or 121. In order to keep that second promise, the insurance company is required to stash away more and more cash over time.

Now, the policy owners have something called a loan provision built into their contract, which guarantees them access to that cash value via policy loans. You see, these people bought their original policies for death benefit purposes, but they also had the cash accumulation.

Now, the policies were 12 years old. They were very well seasoned, meaning that at this stage of the game, the cash value increase was over $2 for every dollar they paid in premium. That was a really good moneymaking machine, so to speak. And I explained to them, it’s sort of like you have a Ferrari in your garage and you’ve never taken it out on the street. We’re going to give you the keys to that Ferrari so you can get it working for you, not the insurance company.

You see that policy has that cash value that you’re able to access through the loan provision on a guaranteed basis. You’re able to repay it within your cash flow because it’s an unstructured loan from the insurance company. And what this family is able to do is borrow against their cash value and pay off this high-interest credit card.

Now, the key here is that as they repay that policy loan, it’s going to reduce the lien against their cash value and they’ll have access to more and more cash value over time. With that, they’ll be able to pay off all of their credit card debt using this process. The beautiful part about it is that they’re going to get out of debt quicker than if they put all of their payments and snowball them on one credit card, then the next, then the next.

That’s the amazing thing about this. Because now they’re filling up that policy equity with two hoses, the premium hose, and the loan repayment hose. Before they were only filling it with the premium hose and they weren’t even tapping into it.

You see, there’s a big difference between paying off debt with a regular snowball and just putting all your cash flow towards getting out of debt as soon as possible versus using a policy loan. Because if you just snowball the traditional way, you spend all of your money and send it all off to the credit card companies, and at the end of the day, what do you have to show for it? Nothing. A zero debt balance.

However, when you use the policy loan to get out of debt, at the end of the day, you have a policy full of cash value that you’re able to access and leverage again, so you are less dependent on those credit companies in the future when it comes to finance your next purchase.

Another key distinction between policy loans and traditional debt is that there’s no qualification. It doesn’t impact your credit score. So actually, their credit score is probably going up after they pay off that credit card debt. And it’s an unstructured repayment schedule so that they’re able to fit the payments into their cash flow.

If they’re feeling cash flush and have a lot of extra cash flow, they can put extra towards that policy loan and get it paid off and built up faster. But if they’re feeling pinched and they only want to make a small amount, they have the flexibility to do that with no questions asked. Because the entity that is guaranteeing that debt is the insurance company, and coincidentally, the insurance company is also the one who’s lending the money to the insured.

And here’s a better distinction when they made the credit card debt, they had to actually apply for the credit card and get permission for that lending amount. They were applying for permission from the bank or the credit company to give them a revolving line of credit. When they went to get the policy loan they were giving an order. They were literally telling them, This is what I want, go get it for me. That is not a small distinction.

The bottom line is, would you rather be controlled by the process or be in control of the process? Do you have a life insurance policy just sitting around doing nothing while you’re accumulating debt?

If that sounds like you, hop right on our calendar by clicking the Schedule your Free Strategy Session button. We’d be happy to talk to you about your situation and how to get you on the path to financial freedom.

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

Decoding Debt: Good vs. Bad – Surprising Insights!

Do you realize that there’s a difference between good debt and bad debt?

You see when I started in financial services, we were told that all debt was bad. But it wasn’t until I put things into practice that I realized, there’s actually good debt and bad debt.

You see, good debt is debt that’s backed by an asset. Bad debt, such as credit card debt, or student loan debt, are debts that are not backed by any assets. You see when you take out credit card debt or go and get a college degree and take on student debt, they give you that debt, that asset, that money to fund your purchases based on your ability to earn income and the potential to pay them back. They don’t have anything collateralized against an asset.

So what are some examples of good debt, and what does that look like, and how do you use that to get ahead financially?

Well, let’s look at a mortgage. You have the house as collateral against the mortgage. And in general, you’re going to have to put up some of your money. It’s called a down payment. So you might buy a $250,000 house, put down $40,000 as a down payment, and you’re financing 210.

Well, the bank’s in pretty good shape because if you default on that loan, the bank only needs to sell that house for 210,000. And the house theoretically should be worth 250,000. They should not have any problem getting equal with what they owe.

Now, let’s contrast that with a car loan. Typically, a good car loan is five years. It takes five years to pay that loan back. And that pretty much keeps up with the price of the depreciation of the value.

However, car loans these days, because the price of cars is now astronomical for any car, many people are financing over six or seven years. But what happens is if something happens to that car or you default on the loan, the value of the car is often less than what you owe on that loan.

The going rate on a car loan is about eight and a half to 9%. The going rate on a mortgage is six and a half to 7%. And the banks know this. That’s why they’ll give us a lower interest rate for an asset that has much greater value.

Let’s take a look at a third type of collateralized loan, a life insurance policy loan. Life insurance policy loans are leveraged against the equity of your policy, the cash value, and the unique thing about this is that the entity that’s giving you the loan, the insurance company, is also the entity that’s guaranteeing the cash value, the asset.

So consequently, they’ll charge you probably a much better rate. And more importantly, those loans are unstructured, which means you determine when, if, and how you pay back that loan. 

Now, it is recommended that you cover at least the cost of the annual interest. You see each policy anniversary if you have an outstanding loan, the insurance company is going to charge you a loan interest bill. It’s recommended that you pay at minimum the loan interest because if you don’t, it’ll accrue onto the loan principal balance.

I was taught that all debt was bad. Then I found out that there’s actually good debt and bad debt. And through practice, we found that there’s actually better debt, and that’s debt that you own and control. That is a life insurance policy loan.

If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation, schedule your Free Strategy Session today.

Also, if you’d like to learn more about exactly how we put this process to work for our clients, check out our free webinar right on our home page. The Four Steps to Financial Freedom. It outlines exactly how we put this to work.

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

Taking Control of Your Cash Flow with a New Financial Strategy

Have you been looking at your finances lately and realized it’s time for you to kick it into gear? Here’s a secret. The strategies that got you to where you are today are not going to be the same strategies that are going to move you forward toward financial freedom.

Most financial strategies promoted out there leave you out of control when you really need it. What do I mean by that? Well, you may be doing all of the right things according to conventional wisdom, paying off your mortgage as soon as possible. Living a debt-free lifestyle. Maybe you’re paying cash for your cars. Maybe you’re investing in the market with your IRA or your 401K. But here’s the trick. All of these things leave your money at risk. Even if you’re investing in real estate, you don’t have any liquid money.

So what happens when it’s time to finance something? Because everything in life is financed. You either pay interest to use someone else’s money, or you give up interest by paying cash. But where is the solution? Where is the financial freedom in this?

You see, following conventional wisdom puts your money out of reach when you need it most. And consequently, that forces us into borrowing when we have a lot of money, we just don’t have access to it. And consequently, this causes frustration. We’re frustrated because why do we have to borrow when we have all of this money sitting in these other accounts? 

Not to mention some of our clients do have money and accounts that they do have access to. But they don’t necessarily want to access that money because they’ll either be locking in losses or making themselves pay a huge tax bill next April.

So here’s really the point. What’s the use of having money if you can’t use it when you need it or you want to use it either for an emergency or an opportunity? Again, your money’s inaccessible. So what’s the solution?

I would argue that most of life’s frustrations come from not having access to money when you really want or need it. So how do you transition from this frustrated way of life to a life of financial freedom?

There’s one answer and one answer only. It comes in being in control of your cash flow and your assets. And you see, when you view things through the lens of being in control, all of a sudden your decisions become easier to make. You’re making decisions with much greater clarity because ultimately it’s really simple.

You say, If I do this, will I be more in control of my money or less in control of my money? And if you’re not in greater control, don’t do it. It’s that simple.

Let’s take a look at an example. Let’s say you want to buy a car and you go into the actual bank And they say, okay, you could finance over five years and pay 6%, or you could finance over seven years and pay 9%. Which option are you going to choose?

Here’s what happened.

The bank took your eye off the ball. They positioned it in a way that focuses on the interest rate. The five-year loan has larger monthly payments. The seven-year loan has smaller monthly payments. Again, when you’re looking at things through the lens of being in control of your cash flow, the decision is easy. 

Another great example of this is with qualified retirement plans. Money goes into these plans on a tax-deferred basis. Meaning, you don’t have to pay tax on that income in that year. However, what you’re actually doing is postponing that tax liability into the unknown future. These are just two examples of how financial services companies, and financial institutions, get us to do what’s in their best interest but is actually detrimental to us. 

So if I could give you one piece of financial advice, it’s this. Keep your eye on the ball. Keep your focus on controlling your cash flow and your cash. And that is a great starting place. If you’d like to get started with our process to put you back in control of your cash flow and make your cash flow as efficient as possible. Schedule your free strategy session today.

Or if you’d like to see exactly how we put this process to work for our clients, check out our free

web course right on the homepage. 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.

Cracking the Code to Properly Save for College

Have you ever wondered how people afford sending their children to college? Sometimes the first child is manageable, the second is tight. And by the third or fourth child, it’s downright impossible. Today, we’re going to talk about how to set yourself up financially to send your children to college and afford that college tuition. 

The cost of college education has been rising at a rate that is significantly higher than the rate of inflation. Basically, that means that what it’s going to cost you to send your children to college is growing much faster than the income that you’re earning. But here’s the deal. If your income grows fast, that factors against you when you’re filling out the FAFSA, the Free Application for Federal Student Aid.

We call inflation the stealth tax because we don’t see it on our tax returns, but it affects each and every single one of us. When it comes to the cost of college, not every family is going to pay the same amount of tuition for the exact same school. You see, it’s calculated based on four factors: parent’s income, parent’s assets, children’s income and children’s assets. So when it comes time to send your children to college, you want to make sure you keep those numbers looking as low as possible.

But the question becomes, how exactly do you do that? How do you set your family up in a position so that you’re paying the lowest legal amount you have to your to send your children to college so that you could get out ahead in the long run?

What you’re trying to do is maximize the amount of federal aid that you receive. And if you do that in so doing, you’re making your money more efficient. What we’re trying to do here is show you how to send your children to college with minimal impact on your ability to save for your future and with minimal impact on your current lifestyle.

But here’s the issue. Traditional methods of paying for college and saving for college are going to leave you pinched. Here’s a secret, 529 savings accounts count against you when it comes to federal aid application. So by doing the right thing and saving for your children to go to college because that’s a major capital expenditure, you’re actually decreasing the amount of aid that your family’s going to qualify for because you did the right thing to save for college. 

If it seems like you’re damned if you do and damned if you don’t. I got news for you. That’s the way they set it up. You see, everything that served you well financially up until the point your children are applying for federal aid, will work against you going forward after the application for federal student aid. 

No parent should have to choose between sending their child to their dream school and funding their own retirement. But unfortunately, that’s what it comes down to a lot of times in these college funding situations. Because you know what wasn’t factored into the FAFSA calculation? How much money parents are paying towards their own debt on a monthly basis. And clearly the amount of debt you have is going to impact not only your lifestyle, but your ability to pay for your child to go to college, especially if you plan on doing so without derailing your own retirement. There’s only so much cash flow to go around.

If you have a lot of debt payments, there’s only so much leftover at the end of the month. What happens is a lot of parents are forced to decrease their retirement savings at the time they’re sending their children to college so that they’re able to finance the cost of college tuition.

Here’s the solution.

You really should be looking at ways to make your money more efficient because the more efficient your money becomes, the better prepared you are to take on or tackle this increased expense of sending your child or children to college.

At Tier 1 Capital, we look at things through the lens of control. Are your financial decisions putting you in more control of your cash flow and assets or in less control of your assets? Whoever controls your cash flow controls your life.

No parent wants to stand in the way of their child pursuing their dreams but we see so many times where children have to make a decision between almost bankrupting their parents and pursuing their dreams.

So what are some practical steps you could walk away with and apply?

Number one is to look at where you’re giving up control of your money unknowingly and unnecessary. We call these wealth transfers. The five areas that we focus on are taxes, mortgages, how you’re funding your retirement, how you’re paying for your children’s college, and how you’re making major capital purchases. And let’s face it, isn’t college a major capital purchase?

Number two would be to build in flexibility to your plan. First, you find the inefficiencies, regain control of that cash flow, and then save in an area where you own and control. And the importance of that is the flexibility to send your children to college to pay for vacations, to pay for any expenses that come up, and then eventually also use that money to retire without the restrictions placed on accounts by the government for example.

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

Is Your Cash Flow Prepared for Student Loan Repayment

The most recent word on the street is that student loan repayments are going to begin again in October of 2023. What does that mean if you’ve been spending that money instead of saving it or paying toward your student loans all along? Well, basically, it could mean that you’re going to experience a cash flow pinch. Between inflation, high interest rates and now an extra debt payment it’s all about cash flow. Whoever controls it, controls your life. Let’s talk about how to create some cash flow relief and set yourself up for a better financial tomorrow.

They call inflation the stealth tax because it’s not written in the tax code, but it affects each and every single one of us. Some more than others. And recently, the costs of goods and services has been increasing at a faster pace than our income can keep up with.

According to the Federal Reserve, in the last quarter of 2022, consumer debt increased by $6.1 billion, which was one of the highest recorded quarterly increases. And that’s just in three months. This is proof that the cost of living is increasing faster than our income. If you don’t have the cash flow built in, it makes sense just to obligate your future income and put it on the credit card.

However, with student loans coming due and yet got another bill that we’re going to be responsible for, how are we going to fit this into our cash flow? This is why it’s more important than ever to make your money more efficient. You see, there’s only so much revenue coming in. There’s only so much income coming into your household or coming into your business. It doesn’t make sense to be using your money inefficiently and wasting the control that you had over that money. That’s why our process is more important today than it’s ever been, because we show you how to regain control of your money. 

What that looks like is looking at your cash flow for areas of wealth transfer. Areas you’re giving away control of your cash flow unknowingly, meaning you’re not aware of it and unnecessarily, meaning it can be corrected. And once you’re able to identify those wealth transfers, you could start saving in an area where you own and control, so ultimately, your goal could be to regain the finance function and control of that finance function in your life so that you’re less dependent on banks and credit companies for access to capital in the future.

You see conventional wisdom teaches us to save in areas where we don’t control that cash flow. Let’s take a look at a 401k, for example. Yes, we’re saving for retirement, which is admirable. However, when it comes to making these small milestones along the way, we don’t have access to that money and we certainly don’t have access to it without paying taxes, and a penalty in most cases.

You might be saying, “Hey, I’m using my money very efficiently.” Well, this is where the problem is. If you’re implementing conventional wisdom or traditional financial advice, in all probability, your money is inefficient. When we say inefficient, what we mean is your money is not accessible when you need it for whatever you need it. No questions asked. If your money is inefficient and inaccessible, that can create some huge financial problems.

I would argue that most financial struggles come from not having access to money when you really want or need it. Take, for example, when student loans are coming due. Imagine if you had access to money, instead of feeling pinched, you can have some cash flow relief built into your system. Flexibility is key when it comes to these issues.

If you’d like to learn exactly how we help our clients to become more in control of their cash flow and their assets Check our free web course that lays out exactly how we put this process to work, The Four Steps to Financial Freedom.

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

4 Key Questions to Ask Before Signing Up for a Whole Life Insurance Policy

So you’re thinking about getting started with a specially designed whole life insurance policy designed for cash accumulation. Maybe you want to expand your business or protect your family, or you want to get started with the infinite banking concept. Today, let’s dive into the four questions you need to ask before you sign the final policy papers.

Let’s get started with question number one. Do you like the agent? This agent is going to be with you for the life of the policy, and it’s important that you have a good working relationship with this person before you sign the contract. And that’s why it’s important to have a key conversation with your agent to make sure the agent understands exactly what your goals and objectives are. If not, you may end up with a policy that doesn’t meet your needs.

Number two is you need to answer the question within yourself How do you plan on using the policy? And does your policy meet your needs? With most life insurance policies, you’re going to be building cash accumulation, but you want to make sure upfront that you know how your policy is going to perform over time.

For example, with monthly contributions to your policy premium. It’ll take some time for your policy to grow and accumulate a cash value. So with that, it will take a little bit more time before you have enough cash value to loan against that policy cash and go out and achieve your financial goals. That’s why it’s important that the agent understands exactly what your needs and objectives are to make sure that the policy fits your needs.

In most policies that are designed for this cash value accumulation or the infinite banking policy, you could expect about 50% of the premium contributions to be available for policy loan within that first policy year.

Number three is to look at your contract and make sure it’s not a MEC or a modified endowment contract. Modified endowment refers to a contract status that the insurance company must perform on an annual basis. Basically, the insurance company just needs to make sure that it is performing like a life insurance contract versus an investment.

Number four is to confirm you’re with the right type of company. You want to make sure your company is mutually owned, dividend paying and non-direct recognition. Mutually owned means that the policy owners are owners of the company, not stockholders.  Dividend paying is important because the policy owners are the owners of the company, they’re entitled to dividends if the insurance company makes a profit that year. And non-direct recognition, meaning that the policy performs exactly the same way, whether or not a policy loan is taken. 

It’s really important that you have the answer to all three of those questions when choosing a life insurance company, because some mutual companies pay dividends but they are direct recognition, meaning that they’ll give you a lower dividend if you borrow. And the point is this: if you intend on borrowing, you shouldn’t be penalized for borrowing.

If you’re looking to get started with the Infinite Banking Concept check out our latest YouTube video. We do a deep dive on the four questions that you need answered before you place that policy in force. Once you have satisfactory answers to all of these questions, you’re going to be in a great position to move forward with your whole life insurance policy designed for cash accumulation.

If you’d like to learn more about how to get started with the infinite banking concept or getting started with a cash value life insurance policy designed for accumulation, hop on our calendar for a free strategy session.

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.

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.