Financial Cases

Making Your Money Work Harder: A Solution to Inflation and Economic Challenges

In today’s economic climate, many are grappling with the impacts of rising inflation, decreasing savings rates, and the overall erosion of money’s value. The question on everyone’s mind seems to be: “How can I counteract these economic trends and make my money work more efficiently?”

The answer lies in optimizing the efficiency of your money. Let’s delve into why this approach is critical and how you can start making your money work harder for you.

Understanding the Impact of Inflation

Inflation has become a pressing concern for many households. You might not need to be reminded that grocery bills are climbing, credit card debt is surging, and savings accounts are yielding diminishing returns. Just a year ago, savings rates were around 6.2%, but they’ve now dropped to approximately 3.7%. This decrease reflects a broader economic challenge where everyday expenses are rising faster than the value of money saved.

Moreover, essential expenses such as homeowners insurance, car purchases, and utility bills are also contributing to financial strain. It’s evident that saving money has become increasingly difficult, and it requires a concerted effort to set aside funds amidst these growing costs.

The Risks of Traditional Financial Strategies

Many people resort to conventional financial strategies like paying off their mortgage early, keeping all savings in retirement accounts, and paying off credit card balances monthly. While these actions seem prudent, they have a common downside: they place your money out of your control.

  1. Paying Off the Mortgage Early: Accelerating mortgage payments ties up your funds in property rather than keeping them liquid for other needs or opportunities.
  2. Keeping Savings in Retirement Accounts: Retirement accounts are valuable but often restrict access to your money. These restrictions mean you can’t utilize these funds in emergencies or investment opportunities.
  3. Paying Off Credit Card Balances: Paying off credit cards monthly is wise, but it also diverts money that could otherwise be used for investments or to build emergency savings.

These strategies, while seemingly sound, may leave you feeling financially trapped if unexpected expenses arise or opportunities present themselves.

A More Effective Approach

So, how can you navigate these financial challenges? The key is to make each dollar work harder by using it for multiple purposes. Instead of simply saving or investing in traditional ways, focus on making your money more efficient. This approach involves:

  1. Optimizing Your Financial Strategy: Assess how you’re currently using your money and identify areas of inefficiency. A minor tweak here or there can lead to significantly better financial outcomes.
  2. Addressing Financial Leaks: We examine five critical areas where inefficiencies often occur: taxes, retirement planning, funding for college education, mortgages, and major capital purchases. By plugging these leaks, you can enhance your overall financial health.
  3. Building a Solid Foundation: Before taking on riskier investments, ensure you have a robust financial base. This strategy allows you to invest in volatile assets with a safety net in place.

The Financial Golf Swing

Think of improving your financial strategy like perfecting a golf swing. Just as a refined golf swing yields better results, optimizing how you handle your money can lead to more favorable financial outcomes. Over our 30+ years of experience, we’ve developed strategies to identify inefficiencies and opportunities, helping clients achieve their financial goals.

Ready to Enhance Your Financial Efficiency?

If you’re interested in learning how to make your money work more effectively for you, we’re here to help. Schedule your free strategy session today and discover how you can improve your financial efficiency.

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

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.

Stabilizing Your Portfolio Using Whole Life Insurance

If you have an investment portfolio, chances are you’ve heard of a 60/40 split. 60% equities with 40% bonds and you’ll be safe. However, do you realize that the 60/40 split recently had the worst year ever because of the inverse relationship between interest rates and bond prices?

With the rising interest rates in the market, prior to last year, bond investments had a run like no other. For 40 years, bond interest rates came down, which means the prices went up. It didn’t matter. When you got in on the bond train, you made money. Those days are over. The reason this happened is because interest rates, again, steadily came down. That’s probably not going to happen for a long time. 

We all know that interest rates are on the rise. They’ve been on the rise for a while. And they’re going to continue to go up until inflation gets under control. With a small interest rate increase last year, the 60/40 portfolio split had its worst year ever. That’s not even taking into account the rise in interest rates since January 1st of this year.

Now, the point of the 60/40 split in the portfolio is to have some riskier investments and bonds to balance it out with some more stability. However, what happened last year was we had volatility in the riskier investments, as well as volatility due to the interest rate rises in the bond market.

So this bears the question, if bonds aren’t stable anymore, and we’re adding them to the portfolio for stability, what do we use to replace the bonds to add stability and keep our money safe?

Most investment managers talk about diversified portfolios, but how do we diversify our portfolio in a way that introduces stability to our portfolio? One way may be with a specially designed whole life insurance policy designed for cash accumulation and you may be wondering, what does whole life insurance have to do with investments?

Whole life insurance is a terrible “investment.” And that, in fact, is true because typical investments inherently have risk. But with a whole life insurance policy, it’s actuarially designed to get better and better, year over year. The fact of the matter is that whole life insurance is uniquely positioned to take advantage of increasing interest rates -which will work out in your favor.

You see when interest rates rise, the insurance company doesn’t have to sell the bond. They’re going to hold the bond to maturity. They can utilize the bonds that are maturing to reinvest into higher interest-rate bonds, or they can utilize those bonds to pay expenses. So it’s an old money, new money type phenomenon.

But the point is, because the insurance company has that option, they don’t have to sell the bonds before maturity, and therefore, realize a loss. In essence, what you’re doing is you’re giving the interest rate risk to the insurance company (instead of taking on the risk yourself -as in typical stock investments) which is uniquely positioned to accept that risk because they don’t have to sell the bonds.

Here’s the long and the short of it.

In rising interest rate environments, the insurance company is able to take on that bond interest rate risk and come out better on the other side. You’re able to transfer that risk to the insurance company. 

But what happens in low-interest rate environments?

Well, whole life insurance policies designed for cash accumulation are a great way to warehouse your wealth due to their many benefits. We have tax-deferred growth within the policy. We have an actuarially designed policy that’s guaranteed to get better and better every year. We have dividends that, once they’re credited, can never go away. We also have tax-free access to the policy cash values via the policy loan provisions. And then at the death of the insured, we have the opportunity to recapture all of the costs associated with the death benefit costs, as well as any loan interest that you paid throughout your life. You have the opportunity to recapture that and keep it within your family at the insured’s death. 

You give the insurance company the interest rate risk. You give the insurance company the portfolio risk, And you give the insurance company the opportunity cost risk. They’re accepting all the risk because they’re uniquely positioned to accept that. And it adds stability to your portfolio, plus, you get a death benefit.

If you’d like to learn more about this positioning, schedule your FREE strategy session with us.

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

The Inverse Relationship Risk between Bonds and Interest Rates

Everyone knows that interest rates are finally on the rise. But what you may not realize is what’s going on under the covers. What’s happening to the bond market as these interest rates rise? Do you realize that there’s an inverse relationship between interest rates and bond prices? Let’s take a deep dive on what this means for you.

Let’s start at the beginning. What the heck is an inverse relationship, and how is there one between interest rates and bond prices? Well, it’s real simple. When the interest rates rise, the value of the bond or the price of the bond goes down. And when interest rates go down, the value or the price of the bond goes up.

Now, in and of itself, it may not mean a whole heck of a lot to the average investor, because if you’re holding the bond to duration or till the end of the bond period, there’s no problem. If you bought a 4% bond and interest rates went up to 5%, you’ll still collect your 4% at maturity. The problem is when you’re either renewing rates or exchanging bonds, that’s where the problem comes into play.

There are three main risks with this inverse relationship. The first is interest rate risk. Interest rate risk really comes into play if you need to sell your bond before maturity. If you need to sell your bond before maturity and interest rates have risen, the value of your bond may have gone down and consequently you’ll receive less than you were supposed to receive. You will lose money.

Risk typically isn’t associated with bonds, as they are considered a safe investment. But as we see here with this inverse relationship and rising interest rates, it can leave you exposed. This could also be a little bit of an issue because bonds are relatively liquid. If it comes down to it and it’s between selling your actual investments, stocks, real estate or mutual funds, it may make more sense to sell your bond, because it’s the most liquid. But the point is this. You have to recognize the fact that bonds are not risk free.

The second issue that could arise between this inverse relationship of interest rates and bonds is opportunity cost. And basically what that means is you might have better opportunities with higher interest rates, meaning that savings accounts, CDs, annuities or newer bonds might have higher interest rates than the existing bonds that you hold, making the value of your bonds worth a little bit less.

Now, the problem arises in this case, when you want to sell your bonds because they have a low interest rate, you can make more money, more interest somewhere else. So let’s get the bonds out of here. We could get a better opportunity somewhere else. But what happens is, we have to sell those bonds. You can’t redeem the bonds before the maturity date, so you have to sell them on the open market. But with that, they have a lower market value. So you could incur double loss in a sense.

Our third and final issue with this inverse relationship, and that is portfolio volatility. Bonds tend to be more stable than other investments, such as stocks and maybe even mutual funds. And consequently, they’re an ideal candidate for diversification of portfolios and risk management.

What this means in plain English is when you have a riskier portfolio full of real estate stocks and mutual funds, oftentimes advisors will incorporate bonds into the portfolio to stabilize and make sure you’re not losing all of your money, or all of your money is not at risk. But here’s the problem. During volatile interest rate environments, when the bond interest rates rise, because of the inverse relationship, the value goes down and that introduces risk to an asset that you may have considered to be less risky.

So, ultimately here’s the point. Fluctuation in bond interest rates can have an adverse effect on your overall portfolio performance.

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.

3 Steps to Avoid the Great Resignation within Your Family Business

As a small business owner, you could feel limited in the ways you’re able to attract, retain and reward your key people. Let’s dive into how to use a whole life insurance policy to accomplish just that for your key people, so you’re able to keep them in the game. 

As a small business owner, there’s no way to do it alone. It’s so important that you have a team of key people around you to help build your business. During the Great Resignation, over 48 million employees voluntarily left the workforce. Some left the workforce before they even secured another job. According to Gallup, 48% of all employees, that’s basically half of your employees, is either actively looking or searching for opportunities.

Let’s ask this question. What impact would it have if you lost any of your key people? The cost of replacing a key employee could be as much as 200% of that employee’s salary. Recently, one of our clients had their plant manager retire. It took three people to replace that one individual. In a small business that could be very close knit and the key employees could end up taking on several roles to move that business forward. They’ll do what it takes. 

This all leads us to why it’s so important to incentivize your employees to make them want to stay. How can you incentivize your key people to stay without giving away equity in your business?  Let’s face it, you want to keep the family business in the family. 

There are ways to make your employees feel valued and to take care of them for their future. Because it is a family business, we do care about their well-being as well. So how does the process work? How do you get started with holding these key conversations with your employees?

Well, the first step is to actually have the conversation. We’ll meet with the owner and we’ll meet with the employee separately. We want to find out the key value for the employer. And we also want to find out what is important to the employee. Because let’s face it, if your objective is to incentivize your key person to stay. If the benefit isn’t perceived as valuable to him or her, they’re not staying. 

As a business owner, it’s really important to keep your key people incentivized to stay and help you to grow your business. But the reality is 48%, one out of two of your employees, is looking for another opportunity.

The second step is to design a plan that meets both the employer’s objectives and budget, as well as meets the needs and desires of that key employee. 

The third step is our secret sauce. We’ll meet with you and your financial team to find areas of great potential, where you may be giving up control of your money unknowingly and unnecessarily. This is where we literally find money that’s hidden in plain sight. It’s money that’s baked into your cash flow cake, but you think it’s moving you forward and it actually really isn’t. That’s the money we can use to fund the incentive plan to keep your key employee. 

If you step back from this process, basically what we’re saying is we can provide a benefit to incentivize your key people with having very minimal, or no impact, on your current cash flow. Because we all know that cash flow is the lifeblood to any business. So it’s important that we keep it as steady as possible. 

If you’d like to get started with incentivizing your key employees and building your strategy, 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.

Optimizing Your Cash Windfall to Efficiently Boost Your Life Insurance Policy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Combating High Inflation and High Interest

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

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

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

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

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

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

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

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

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

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