When it comes to the Infinite Banking Concept, there’s one major key to consider before you get started. Is your company a direct recognition company or a non-direct recognition company? Today, we’re going to take a deep dive into this.
A lot of times people are looking to get started with IBC and a huge mistake they can make is choosing a company that uses direct recognition. You may be wondering, what does direct recognition even mean?
Basically, the insurance company recognizes the fact that you have a loan against your policy and they credit you a lower dividend on the loaned balance. That’s analogous to having money in a CD with a bank that’s paying you, let’s say, 2% interest and at the same time borrowing from that same bank for a car loan. Let’s say they’re charging you five and a half percent interest. Then the banker says, well, you know because you have a car loan with our bank, we’re going to give you a lower interest rate on the CD. Would you want to do business with that bank? Here’s the point. If the purpose of getting an insurance policy is to borrow against the cash value, why in the world would you want to be penalized for doing what you want to do with your policy?
At the end of the day, the insurance company has to invest that money somewhere and they’re limited as to where they’re able to invest. They could invest in commercial real estate, bonds, or policy loans. And most of the investments are in bonds and commercial real estate. But at the end of the day, policy loans are one of the best places for insurance companies to earn interest.
The reason why policy loans are the best investment for insurance companies is that the entity that is making the loan – the insurance company – is also the entity that is guaranteeing the collateral – the cash value in your policy. They don’t have to pay somebody to do an appraisal or to do an audit. They know it. That’s their job. They’ve already done the administration. So it’s a no-cost or low-cost way for the insurance company to pick up a guaranteed rate of return. When it comes to direct recognition, they’re really just increasing their already guaranteed rate of return because you’re paying interest on that loan. So by lowering your dividend, it’s just increasing their gains. We always preach to our clients – regain control of your money. Are you regaining control of your money if the insurance company is penalizing you for borrowing against your policy?
So we’ve created a cheat sheet for choosing the best company to work with for an infinite banking concept policy. We have five criteria that we’ve used when choosing an insurance company.
First, it’s got to be a mutual company. Why? Because mutual companies share the profits of the company with you, the policyholder. In essence, you’re the owner of the company as it relates to your policy.
Second, the company has got to have been around for over a hundred years.
Third, it’s got to have been able to have paid dividends for over 100 consecutive years.
Fourth, it should be non-direct recognition, meaning that they’re not going to penalize you if you borrow against your policy.
And fifth, the company should be licensed to do business in the state of New York. Why is that important? Because New York has the highest level of regulatory protection for the policyholder. And in insurance law, if you want to do business in New York, you have to follow New York law in the other 49 states.
If you look at these five criteria, you’ll be able to choose an insurance company that will best benefit you for the infinite banking concept. If you’re shopping around and looking for the best company to use for the infinite banking concept, check out our website at tier1capital.com 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.
So you’ve been looking into the infinite thinking concept and you’re wondering when is the best time to get started? Well, age is an important factor and today we’re going to do a deep dive on what the best age to start a policy is.
First and foremost, why is the infinite banking concept a great thing? Well, the reason is we use a specially designed whole life insurance policy to get and keep you on the compound interest curve. We start that compound interest curve for you and your family and never let you fall off. You have complete liquidity, use, and control of your money along the way. Also to accomplish your short-term, long-term, and intermediate financial goals. The infinite banking concept is literally a method of making purchases. We always say:
“It’s not what you buy, it’s how you pay for it that really makes the difference.”
With this concept, you’re literally able to turn liabilities into assets and leave you and your family, or your business, in a more secure financial position than when you started.
As we noted, the infinite banking concept is a method of making a purchase. So let’s look at the other ways that you could make a purchase.
You could pay cash, in which case you’re draining down the tank and no longer earning interest on the money you used for the purchase.
You could lease, which is even worse than financing because you don’t even own the product that you purchased.
Or you can use the infinite banking concept, in which case you’re borrowing against your own money, continuing to earn uninterrupted compound interest, and being in control of the terms and conditions of the loan.
So let’s get back to the question of when is the best time to get started with a policy for infinite banking? The answer is as soon as possible. A lot of times younger people will come to us and they’ll get hung up on the fact that we use whole life insurance for this concept because they are either single or they are a young family and don’t have children yet. What happens is they don’t move forward and that could be a huge mistake.
When’s the best time to start saving? Really, that’s the question. The answer again is as soon as possible. The trick is to always pay yourself first. A lot of times people get in the habit of paying for a million subscriptions or paying a lot for a car payment or their rent, and they forget the importance of starting that compound interest curve as soon as possible. With the compound interest curve, it needs time and it needs money. These policies allow us to save as a matter of course and still have access to that money to achieve our financial goals. You don’t have to start by putting a lot of money into a policy. You could start out at $50 a month or $100 a month. The key is to get started.
On the other end of the spectrum, are people in their fifties or sixties or even in their seventies, who say, “Gee, I wish I’d started a policy 20 years ago. I wish I knew about this”. Well, if you’re not done making purchases, you’re not too old to start an infinite banking concept policy. Whether you’re young or whether you’re old, it’s important to get started before your health is compromised. If you find out about this method after your health is compromised and you can’t get insurance, you may be able to purchase insurance on someone else’s life and still use this method and you just won’t be the insured. Keep this in mind. I have a gentleman who was 83 years old when he started his first IBC policy. So you’re probably not too old.
Here’s something to consider, when you purchase a whole life insurance policy, the insurance company is making two promises. The first promise is to pay the death benefit when you die anywhere along the way throughout your whole life. The second promise is to have a cash value equal to the death benefit at the age of maturity, which is usually at age 121. So the difference between a young person purchasing life insurance and an old person purchasing life insurance is the cost of insurance because, with an older person, the insurance company has less time to reach that same death benefit cash value equilibrium. Another way to look at this, though, is the fact that with older people, the insurance company has to put more money away sooner, which means you’ll have more access to cash sooner for an older person versus a younger person. This is very important when it comes to the infinite banking concept because with this concept, typically the insured isn’t looking at the death benefit. They’re looking more so at the cash value.
Another thing to consider for younger people is the policy design. There are riders that allow us to stuff more cash into the policy sooner to make that policy for a younger person much more efficient than the traditional way of purchasing insurance.
So here’s the point, whether you’re young without a family or old with a family or anywhere in between, the best time to get started with the infinite banking concept is yesterday. If you’re ready to get started with an infinite banking concept policy designed for you to meet your cash flow and your needs, visit our website at tier1capital.com. We have a free web course there which you’re welcome to watch. It goes into a deep dive into how our method works. If you’re ready to get started, feel free to schedule your free strategy session today.
Remember, it’s not how much money you make, it’s how much money you keep that really matters.
We have a team that specializes in the college application process. They will help you with everything from filling out the free application for federal student aid – FAFSA, to helping your child write essays for their college application. Also, they will help you negotiate for a better deal after you have received your initial offer on financial aid. All of these things are to help your student get into their dream school, a school that is a good fit for them. Not just that, it also helps parents not to overpay for their children’s college education.
This service includes a detailed report that assesses each of the schools that your child is interested in attending. This could even give suggestions for more school options that would be a good fit based on your child’s area of interest.
The report is everything you need to know about sending your child to school/college. It even conducts a financial analysis that breaks down the EFC for each of the schools and goes as far as breaking down the minimum EFC your family could expect for each school.
This report can help you save thousands of dollars per year. It can be a great resource to answer any lingering questions you may have regarding the college process. Keep in mind that not everybody pays the same price to attend the same school and that everything you have done up to this point to become successful financially might not be beneficial for financial aid purposes.
If you’re ready to send your child to their dream school without breaking the bank and without overpaying for tuition, schedule your free strategy session today! Remember – it’s not how much money you make. It’s how much money you keep that really matters.
Last week, we got a call from a client who got an unexpected $25,000 tax bill. Coincidentally, at this came at the same time as his premium bill, loan interest bill and loan principal bill. He called us and he said, “Guys, do I really need to pay all of this stuff for the policy?”
If you are in a similar position where you have limited cash flow and are wondering what order and priority you have to pay first, stick around to the end of this blog post because we are going over all of the details.
When you get a premium bill and your cash flow is limited, keep in mind that you should always pay the base premium first. When our client called, we showed him that his premium was about a little over $20,000 per year but his policy was over 16 years old. So his cash value increase was going to be over $32,000 from this 16th year to the 17th year. Once he did the math, he realized that he should definitely pay the base premium because for every dollar he put in the premium, he will get a cash value increase of $1.50.
So it makes sense to pay the base premium. And that’s the number one priority, pay the base premium. Especially as your policy matures. It will may seem to be more challenging to realize, but the more you pay into the policy at that time, the higher rate of return you’re going to get within your policy. So always pay the base policy first.
After you pay the base premium, the next thing you should look at paying is the paid up additions rider, if your policy has one. Especially in the first five years. By paying the paid up additions rider in the first five years, it will give you access to more cash sooner so that you can start using your policy to pay for the things of life. The reason why you want to pay the paid up additions in those first five years is because it takes a little bit of time for the policy to mature on its own. After those first five years are up, you may consider closing out the rider or opening the window so you could put money in at a later date.
The third priority to pay is the policy loan interest. The reason why this is third is because, if you don’t pay the loan interest, the loan interest balance will be added to the loan balance and it will may constrict the amount of cash value that is available in the future to access via the policy loan provision.
The fourth area to be paid should be the actual loan balance. By paying the loan balance and as your loan balance gets paid down, your cash equity increases. That puts you in a position where you will have more access to more money later on to accomplish your goals. With the loan balance, every dollar you put in is accessible via the loan provision. A lot of times, this is tricky for our clients to wrap their heads around with this idea because we are trained that debt is bad. But that’s not necessarily the case with policy debt. We are not taking money from the policy. We are putting a lien against the policy. So your cash value will continue to grow and earn dividends as if there is no loan against it. But by paying it down, if you have the cash flow to do so, you will have more access to cash as you pay back your loan. Also, there is less loan interest built for your next policy loan anniversary.
So let’s summarize the order of priority for paying policies. First base policy premium, second paid up additions rider, third loan interest, and fourth loan principle.
If you have more questions or would like to talk to us, feel free 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.
If you’ve been reading our blog posts for a while, you will know that we often talk about using specially designed whole life insurance policies to help our clients accomplish their goals. Sometimes, people come to us and say, “Hey guys! This seems like it’s too good to be true. What’s the catch and why aren’t more people doing this?”. If you’re interested in having those questions answered, stick around to the end of this blog post.
People come to us because they are generally frustrated that they’re making a good income and they are doing everything by the book according to the so-called financial experts. They are maximizing their retirement accounts. They are paying down their mortgage and they are saving for their two children for college. But they just don’t seem to be getting ahead. They feel frustrated because they don’t have access to money when there’s a financial or medical emergency, or they don’t have access to money when there’s an opportunity that they’d like to take advantage of. Because of that frustration, they seek assistance from financial advisers who could help them.
We met with a client who was a surgeon. He and his wife were very frustrated because they wanted to take their children to Disneyland. It was only going to cost $13,000. They make $800,000 a year and they were frustrated because they didn’t have access to their money. Why? It’s because they were maxing out their retirement accounts. They were saving money for their children’s college education. They were paying down their mortgage. So they didn’t have access to any of the money that they made.
Clearly it’s not the income that was holding the family back. It was how they were using their money. That’s why we always preach, “It’s not how much money you make. It’s how much money you keep that really matters”. One of the first things we do when we meet with clients is take a look at their personal economic model. We look for inefficiencies. Places where they are giving up control of their money unknowingly and unnecessarily. Unknowingly, meaning they’re not aware that they’re giving up control of that money. Unnecessarily in a sense that, they could actually change it. Although not necessarily that they could change it as quick as a snap of a finger. That’s one of the first things we look at and that’s really why we focus on regaining control of your money so that you could get rid of those frustrations and you could accomplish what you want with your good income.
Regaining control of your money means putting you in a position where you could access your money when you need it. When we talk about plugging those leaky holes in your financial bucket, it’s literally identifying the five major areas where you are giving up control of your money. Those areas are taxes, how you fund your retirement, how you pay for your children’s college, how you pay for your real estate mortgages and how you make major capital purchases. We do a deep dive as to how you’re using your money in these five areas to show you exactly where you’re giving up control of your money.
Where am I giving up control of my cash flow?
It all becomes so simple. Whoever controls your cash flow controls your life. We find it very important to identify the exact places where our clients are giving up control of that cash. So they could regain control of their financial life. Keep this in mind, anywhere you place your money, besides under your mattress, is a financial tool. They are all financial products. But the products we use to help our clients accomplish their goals are specially designed whole life insurance policies, specifically designed to accumulate as much cash value as possible and as quickly as possible.
The reason why we do this is to help our clients accomplish short term, intermediate, and long-term financial goals; Short Term Goals – maybe it’s paying off debt or planning to go on a vacation. Intermediate Goals – could look like saving for a wedding or a down payment on a house or sending your kids to college. Long Term Goals – would be planning for a retirement, supplementing your retirement, or using the cash value on a tax favored basis to supplement your retirement income, as well as leaving a legacy for your family.
When we’re recommending a financial product to our clients, we have a few things in mind.
Number one, they need to have access to that money, complete liquidity to use and control so that they can use it for whatever they need, whenever they need it, no questions asked.
Second, we want them to be safe. Safe from market losses and their money protected from Wall Street and creditors, if they are subject to a lawsuit or bankruptcy. Finally, safety from the government so that if the government increases or changes taxes, their money is protected.
The next thing we want is continuous compounding so that they could access their money, but still earn interest. As if their money is in two places at once. And think of this. What’s the rate of return? Getting $1 to do two jobs.
Finally, we want a reasonable rate of return. Let’s say somewhere around three to four percent.
If we can get all of those things with one product, then that really helps us to accomplish our client’s goal of having access to their money, but more importantly, making their money more efficient.
We believe that there is more opportunity in helping our clients avoid the losses than trying to pick the winners. Using this specially designed whole life insurance policies allows us to accomplish all of the things mentioned above and so much more. Because they are able to take advantage of opportunities when the stock market is down or when a business opportunity comes up. They are able to pay off their debts or buy a car. They’re able to use that money, however they want to use it without interrupting the compounding of interest. This is such a powerful tool.
Now that we’ve listed all of the benefits that you can get from owning cash value life insurance. Let’s talk about what it won’t do. It will not give you the highest rate of return in the shortest period of time. For a lot of people, that’s a deal killer. But that’s okay because you see, we’re worried about helping our clients who want to regain control of their money, who are sick of being frustrated from not having the cash to accomplish their short term intermediate and long term goals. The cash value life insurance gives them the opportunity to do those things we mentioned earlier.
We believe that there’s more opportunities in avoiding the losses and making your money more efficient and working for you consistently with no risk of loss than there is in picking the winners. That’s why we use this product so passionately.
Why aren’t more people doing this?
Well, it’s real simple. This is the way people used to save back in the seventies. But unfortunately the wall street model took over. IRA’s and 401k’s became popular or started in the seventies. The Wall Street model has pretty much taken over for the past 40 years. But prior to that, this is the way people used to save. But keep in mind, cash value life insurance has been around for over 200 years.
Ray Kroc used cash value life insurance to keep his business going when he was trying to figure out how to make money from McDonald’s. Sam Walton bought so much life insurance for many of his employees that he ended up paying a fine. Walt Disney borrowed against his life insurance when no bank would loan him money to start the theme park in Florida. Keep this in mind, banks are the largest purchasers of cash value life insurance. They take profits from their customers.They recommend the customer to put money in places where their money is tied up and then they take those profits. Put some of those profits in cash value life insurance.That’s very ironic.
So when the question is posed, “Why aren’t more people using this product?”. The answer is quite simple. Advisors today are not trained on how to use this product to its full potential. But for our company, we have been using this for several years with all of our clients, as well as personally. We use it to purchase cars, to invest in our business and send kids to college. All of the things that we’re talking about to our clients, we’ve done personally, and we’ve been doing it for several years. That’s the difference between us and most advisors. They are not trained on how to use this product and how to make it as efficient as possible for their clients.
If you are tired of feeling frustrated and stuck that your cash is pinched, or you feel like you’re doing everything right, but still can’t seem to get ahead and would like to learn about how you could put a whole life insurance policy, specifically designed for cash accumulation, to work for you and your family. Feel free to schedule a free strategy session or check out our web course where we go into great detail about how this process works. Remember, it’s not how much money you make, it’s how much money you keep that really matters.
Are you thinking about how you’re going to afford college tuition for your kids?
Whether your child was just born or is going to college this spring, the cost of college is a major expense for parents. If you’re looking for advice on how to pay the least amount for your child’s college education, we’re going to go over some simple shifts that you could make to ensure that you don’t overpay for your child’s college education in this blog post.
The cost of college is not the same for everyone. Not everyone who goes to the same school in the same year will pay the same amount for college. The cost of college is individual to each family, and it’s based on a few factors used in the financial aide calculation. That calculation includes parent’s income, parent’s assets, student’s income and student’s assets.
Notice what’s not included in that formula: DEBT. You can make $150,000 of income. And with taxes and expenses, you have spent $150,000. None of that matters as far as the formula is concerned.
Here’s an example of how we were able to help this family reduce their EFC and free up cash flow to assist their child in paying for college tuition.
First and foremost, reducing the cost of college for your child can be as easy as rearranging your assets to make them “FAFSA Invisible” – meaning they go from residing in an asset that is included in the financial aide calculation to residing in an asset is not included on that financial aide form.
Secondly, our specialty is helping families find the cash flow to fund the cost of college. We look for inefficiencies in the family’s monthly cash flow to find and plug the holes in their “leaky bucket.”
We applied this process to a family a few years ago – they had an income of $120,000 per year and a consumer debt bill that included several credit cards and personal lines of credit that totaled over $130,000. On top of the insurmountable amount of consumer debt (which consumed a large chunk of their monthly cash flow, as you can imagine), they also had a son who was about to attend college in one year. Since they had a good income of $120,000, they were on track to pay around $30,000 per year towards their son’s tuition.
Our process, worked to get them out of debt within 3 years and allowed them to fund their son’s tuition costs also.
In 2020, I got a call from the client and she said, “Olivia, you know, so many people are struggling financially. I feel guilty that I have this cash available”. And I said, “Well, you know, you did all that work. There’s no need for you to feel guilty. When you came to us, you were in such a tight cash flow position. And the shifts that you made put you in a secure financial position, even when the economy was at an all time low”.
So if you are in a position where you feel like your cash flow is pinched and you have a major expense of college coming up for your child, check out our free half hour webinar to learn more about this process and how it could help you. Or if you’re ready to get started, schedule your free strategy session today. So we could speak to your specific financial situation. Remember, it’s not how much money you make. It’s how much money you keep that really matters!
Congratulations! You are now ready to access the cash value in your life insurance policy and might want to organize your finances by separating your family finances from your policy finances. In this blogpost we will talk about everything you need to know about setting up a segregated account for your policy finances.
These are the four simple steps:
Step No.1
Is to set up a new checking account to separate from your family finances. With this segregated account, you have two options. You can do it at your regular bank, which has the benefit of quick and easy transfers that will usually take within a day or two between bank accounts. The second option is to go online and find a new bank that might pay a higher interest rate, but will take a few extra days to transfer money between the bank accounts. So keep that in mind.
Step No.2
Now that you have the new bank account set up, the second step is to request a policy loan. So however you do that with your insurance company, get the policy loan and deposit into the segregated checking account. From there, you will pay your major expenses. Whether it’s paying off a credit card, buying a new car, paying for a wedding, or going on vacation. You will pay right from that segregated checking account.
Step No.3 The key is to pay yourself back just as if you took a loan from the bank. You can set up an amortization schedule. Most of the time, our clients will decide with an amount that they could afford to pay back to the policy loan on a monthly basis. Some will decide to pay it back over two years or five years. That will determine how much they have to pay themselves back. Also, keep in mind that the deductions to pay back the policy loan will directly come from that segregated account. You will have to transfer money from your family checking account into the segregated account, back to the insurance company.
. Step No.4
Determine whether or not you want to pay yourself back at a higher interest rate than what the insurance company is going to charge you. Remember that if you pay yourself with a higher interest rate that is more than what the insurance company is requesting you to pay, the loan will be paid off earlier than the amortization schedule. Which means that you may have a Thirty Six months amortization schedule, but the policy loan will be paid back in just Thirty Four months. If that’s the case, we always recommend our clients to stay on schedule by transferring the monthly payment from your family finances account to your segregated account. Because that money that stays there is literally the profit that you made from yourself for doing self finance. Once those profits build up you can use it to the Paid Up Additions Rider or to purchase additional policies.
In his bestselling book, “Becoming Your Own Banker”, Nelson Nash made a great argument for paying a higher interest rate. He called it “Don’t Steal The Peas”. His analogy is that if you own a grocery store and you want to buy groceries or go grocery shopping in your own store then you may want to go out by the back door bypassing the cash register. He referred to that action as “stealing the peas”. He meant to say that you have to pay back the principal amount and interest. You wouldn’t want your wife to buy groceries at ShopRite, Price Shopper or other grocery stores. You have to shop at your own grocery store like a captive customer. Since you are shopping at your own store you should pay yourself a higher interest rate. That’s what he meant by not stealing the peas, pay yourself. Not only the interest rate, the insurance company is requesting, but a higher interest rate because you are a captive customer.
What are the benefits of paying yourself higher interest rates?
Every time you make a payment back to your policy, you’re increasing the amount of capital that’s available to you. Not to the credit cards nor to the finance companies. You have access to every dollar you are paying back to your policy loan. Now, keep in mind, setting up this segregated or separate bank account is completely an optional step. You do have the choice to put the policy loan proceeds into your family bank account, but there are some benefits in doing it this way with the segregated bank account. First and foremost, it just makes things easier to track. You can track your progress. You can witness or realize your profits from self-finance at the end of each month.
You earn interest every month instead of the bank, finance company or credit card company. You will be able to see how much they would be earning off of you.
Now let’s recap. The four steps to getting this set up for yourself.
Step One is to pick a bank and set up a segregated checking account. Step Two is to request your policy loan and have it deposited directly into your segregated account. Step Three is to create an amortization schedule based on your cashflow or your timeline. Step Four is to track your progress by reviewing your bank statements every month.
Remember that it’s not how much money you make, it’s how much you keep that really matters and it is our mission to help as many families as possible to come up with strategies to maximize their policy loans. If you’re ready to get started and learn how to put this strategy to work for you, schedule your free strategy session today.
You often hear that whole life insurance is a lousy investment and that’s kind of true in the sense that life insurance isn’t an investment. Investments inherently have risk and that’s not the case with the whole life insurance policy.
With the whole life insurance policy designed for cash accumulation, you could expect to earn anywhere between 3% and 5% over your lifetime – but understand that’s not how the policy starts off.
Starting a new life insurance policy is kind of like starting a business. If you were to start a business today, you wouldn’t expect to become profitable in the first year, the second year or even the third year – but usually from the fourth year, that business will become profitable and hopefully will continue to grow year over year. The same holds true with a whole life insurance policy designed for cash accumulation. In the first year, you might have access to 40% of what you pay in premium. In the second year, it might be 60% or 65%. In the third year, 90% or 95%. But from the fourth year on, you should be generating a profit year over year in that policy and it will only get better from that point forward because of the way the policy is designed.
Basically, for each dollar you pay in premium from the fourth year on, you could expect your cash value to increase by more than one dollar. As mentioned, life insurance isn’t an investment because there is no risk. Once that money is credited to your cash value, that value will never go down.
On a cumulative basis, we would expect the break-even point to be somewhere between year seven and year ten. For example, if you paid a hundred thousand dollars in premiums over 10 years, you would expect your cash value to be a hundred thousand dollars in those 10 years and maybe a little higher. After that, the cash value and the accumulation value will continue to grow year after year.
The key here is that the so-called financial experts will judge life insurance on those first 10 years and say it’s a lousy investment. But what they’re completely ignoring is the fact that you could still access that money through the loan option or the loan feature in the policy. Taking advantage of the loan provision can allow you to not only generate that internal rate of return, but to generate an external rate of return on your money. This can allow you to make all of your other savings and investments much more efficient. Keep this in mind: You have the internal rate of return – that isn’t going to be interrupted by accessing that cash using policy loans PLUS you’re able to put that money to work for you somewhere else and make an external rate of return on an actual investment. Once you make the money on your investment, you can cash out and repay your policy loan and realize your profit.
Can I use my policy in the early years – before the break-even point?
A lot of times people come to us with credit card debt and they’re paying a very high interest rate which is taking up a lot of their monthly cash flow. An example of how you could use your policy is to repay that credit card debt using a policy loan and then rebuild and replenish your cash values so that it is accessible again in the future. Basically, you could take a loan against your life insurance cash, pay that credit card off and then redirect the payments from your credit card to repay the policy loan until the loan is paid off. Not only do we have a lower interest rate, we also have control over that payment amount every month. If you run into cash problems, you could back off on that payment. But if you are cash flush, you could pay that debt off faster and you’re actually building an asset for yourself.
Another way that you could access that money either in the early stages of your policy or the late stages is to borrow against your cash value to make an investment whether that’s into stocks and bonds, crypto currency, gold, silver or real estate.
The key is using the cash value in your life insurance policy to make your other money substantially more efficient.
Only in a whole life insurance policy, you can have access to the cash values without draining the tank. Basically you’re able to continuously earn compound interest and access that money to make an investment that will potentially earn you a higher rate of return. You have the policy earning the 3% to 5% over your lifetime at the same time you also have the ability to earn a higher rate of return on investments like stocks or real estate. Whether it’s to make an investment or to pay off debt, the bottom line is that you’re making your money more efficient. Your money is working in more than one place at once. That makes your money more efficient and ultimately puts you in a stronger financial position.
What about getting a margin loan or borrowing against the equity of my real estate?
It is possible to access money from other sources like a home equity loan or a margin loan on your investment portfolio. However, whole life insurance is the only financial tool that allows you to access money and know for sure that you’re going to have a greater account value at the end of the year than you did in the previous year – when you take a loan against your life insurance cash value, the compounding of interest is never interrupted. Your policy continues to perform as if you had not accessed any money.
With a margin loan, the underlying investments might decline and you may have a margin call – once again putting further squeeze on your cash.
In real estate, the value of your real estate could appreciate or it could also depreciate, it depends on the market conditions. Also, with a real estate loan, you have a structured repayment versus with a policy loan where you can determine the payment terms in the sense that if you want to put $50 a month on the policy loan, you could do that. If you want to put $300 a month on the policy loan, you could do that. If you don’t want to put anything on the policy loan, you could do that as well. There’s no one telling you what the repayment schedule is.
Here’s another thing to consider. What if you just drain your savings to make the investment? What’s the difference there?
We had this situation with a client who started a policy. They had about $5,000 of cash in the policy. They coincidentally have a $3,500 credit card bill that’s due and they wanted to pay off the credit card. The husband wanted to borrow against the policy because he sort of understood the concept of leveraging life insurance and the power of using this method. The wife was a little hesitant and wanted to use money from their savings account instead of a policy loan. They had $20,000 in savings and she said, “Well, let’s just take $3,500 from the savings, drain down the tank. Then we could leave the money in the policy to use for our home improvements.” What they’re missing is the fact that before that transaction, they have access to $20,000 that they own and control. If they drain down the tank to the tune of $3,500, they don’t control $20,000. They only control $16,500 and they’re still earning the interest in the policy because they didn’t access the money. But if they don’t take the money out from the savings and they borrow against the policy, they will still control $20,000 and they will still earn interest on the $5,000 – even though they accessed $3,500 against the policy. That’s what we call opportunity cost. We don’t only consider the money that we’re using – we also consider what that money could have earned us had we invested that money.
Whether it’s to pay off debt or pay a lower interest rate against the policy versus credit cards or whether it’s to make an external investment by accessing the cash value in your life insurance. Life insurance could allow you to generate that external rate of return on investment opportunities and still guarantee that you’ll get the internal rate of return on your cash value that you have accumulated in the policy.
Remember, it’s not how much money you make, It’s how much money you keep that really matters.
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Promise No.1 – They’ll pay the death benefit whenever you die, as long as you own the policy
Promise No.2 – Once you reach the age of maturity (typically 100 or 121) they will have a pile of cash equal to the initial face amount of the policy waiting for you when you hit that age of maturity, whether it’s 100 or 121.
Now, if you have a limited pay policy, let’s say life paid up at age 65, that doesn’t mean you’ll have the equivalent of the face amount available in cash at age 65. It means premium payments will stop at age 65 and the cash will continue to grow. So that at 4% the policy will have, a cash value that is equal to the face amount at the age of maturity (typically at age 100 or 121, depending on the policy).
Where do the 4% returns come from?
The 4% guaranteed discount rate comes from regulation 7702. Recent changes made to this regulation allowed the discount rate as low as 2%.
Basically, if the insurance company is using a lower interest rate, that means everywhere along the line they need to have more cash so they can keep Promise no. 2: to produce a cash value equal the face amount at the age of maturity, whether that be age 100 or age 121.
So consequently, if they’re applying a lower discount rate they will need to have cash more cash along the way – It means your cash value along the way should be higher. So, if you’re designing a policy for cash value accumulation, the changes in the regulation aren’t necessarily a bad thing.
The downside of changes in 7702?
Well, prior to the 7702 changes in 2021, the actual cost of pure insurance increased. For example, a $100,000 of the death benefit may have cost $4,000 per year prior to the change in 7702, may now cost you $4,800 per year.
The death benefit is going to cost more, but that’s not necessarily an issue when you’re building the policy, designing it around accumulating cash.
Conclusion
Remember, it’s not how much money you make, It’s how much money you keep that really matters.
If you like this post, don’t forget to leave us comments down below on what you think about this topic.
Want to learn more about this topic, check out our free web course to see how our process works. If you are ready to talk, feel free to schedule a free strategy session today to get started.
Currently we’re at 20.7 trillion of money in circulation. In 2025, it’s projected to be 33.5 trillion, and in 2029, it’s projected to be $53.9 trillion. Doesn’t that create inflation? What does that mean to us? Well, isn’t inflation really having an effect on the purchasing power of our money? Isn’t that literally a way that the government found to pay their bills by taking money from us, stealing our purchasing power?
Did you know that 40% of all US treasuries have been printed between the year, January, 2020 and today, not only that, but 78% of all the money that our government has ever printed has been printed between January 20, 20 and today. Do you have any idea what effect inflation is going to have on you, your family and your business? When it comes to responding to crisis, whether it’s wildfires, hurricanes, pandemics, or war, our government only has two ways that they’re able to respond. They could respond legislatively by increasing taxes, or they could respond administratively by printing more money. That’s it. They only have two tools in their toolbox when it comes to responding to crisis.
Federal taxes are projected to be $3.8 trillion for 2021. In 2020, 61% of us households paid no federal income tax and that number is expected to increase in 2021. Now in 2025 tax revenue is projected to be $6.3 trillion and in 2029, 8 years from today, tax revenue is projected to be $10.5 trillion. So we absolutely know that the government is planning on increasing taxes. Now here’s the question. When the government increased taxes, are they going to tax the people who don’t pay any taxes? Or are they going to tax the people who are used to paying taxes? Let’s face it. They can’t get blood out of a rock and when they go to increase the taxes by 270% over the next eight years, are you willing to pay those taxes? Are you prepared? What are you doing to protect yourself, to make sure you’re not paying more taxes than you need to? The point is we live in America and we have choices. Are you choosing a strategy that protects you from taxes? Or are you choosing a strategy that is going to subject you to increasing taxes?
So now we’re going to take a look at what happens when our government responds administratively by printing more money. Did you know that in the year, 2000, the amount of money in circulation measured by the M2 money supply was $4.8 trillion? In 2021, it’s projected to be $20.7 trillion. Now think about this: In the year 2000, it was 4.8 trillion, in 2021 it’s 20.7 trillion. The amount of money in circulation grew by over 430%. Well, our population in the year, 2000 was 300 million people. Today it’s 330 million. So the amount of people in our country grew by 10%, but the amount of money that they put in circulation grew by 430%.
The bigger problem is currently we’re at 20.7 trillion of money in circulation. In four years, in 2025, it’s projected to be 33.5 trillion, and in 2029, it’s projected to be $53.9 trillion. That’s a big number, but when the government prints more money, what does that create? Doesn’t that create inflation? What does that mean to us? Well, isn’t inflation really having an effect on the purchasing power of our money? Isn’t that literally a way that the government found to pay their bills by taking money from us, stealing our purchasing power?
How do you protect yourself against the effect of increased taxes and increased inflation? The stealth tax?
Well, that’s easy first and foremost, you want to protect your money. So you’re never subjected to losses. Secondly, you want to have access to your money so that you could take advantage of any errors, mistakes, or blunders that are made by the government, wall street and the banks. Lastly, you want to do both with reduced or eliminated taxes. What I just described are the benefits of cash value, life insurance.
If you’re looking to learn more about how cash value life insurance could help protect you, your family and your business against the eroding effects of taxes and inflation, schedule your free strategy session today!
