Life Insurance

Effects of Inflation on Whole Life Policies and Premiums

With inflation being a hot topic these days, a natural question may be, are my life insurance policy and my life insurance premiums inflation-proof? And how exactly are they impacted by inflation?

Based on the data inflation is officially a problem that we’re going to have to deal with. And based on experience, we all know the impacts of inflation. In December 2021, inflation stood at three-quarters of 1%. It wasn’t even calculated at 1%. In August of 2022, inflation was over 9%. And in December of 2022, it was down to 4.6%. Still a far cry from 75 basis points.

Now they call inflation the stealth tax because we don’t see it as a tax. It’s nowhere in our tax returns. It’s nowhere on our payroll checks. However, it impacts each and every single one of us, some more than others. We know we’re dealing with inflation, every time we go to the grocery store, every time we fill up our gas tanks, every time we get our utility bill, we are experiencing the damaging effects of inflation.

Now, pivoting to life insurance, how exactly does inflation impact the death benefit and the premiums? Well, keep this in mind. Inflation impacts everything. The question that needs to be answered is, is inflation impacting us positively or negatively? Because the news is not all bad.

Take your premiums, for example. With a whole life insurance policy, your premiums are locked in for your whole life. Whether your policy is a ten-pay policy paid up at 65 or a paid-up at age 121. Those premiums are contractually guaranteed to never increase. So the longer you can extend that premium payment period. You’re also paying those premiums with dollars that have been affected by inflation. So when you get to the tail end, let’s say age 121, the value of those premiums has been greatly affected by inflation. 

A candy bar back in the sixties cost, what, $0.10? Today, you’re lucky if you could get a Snickers for $1.50. Think about that in terms of your premium. Your premiums are going to stay the same. But if you waited all that time, it’s going to feel like a nickel. And that’s the point. Inflation is going to affect your life insurance premiums positively because the dollars are going to have less purchasing power, the longer you extend your premium payment periods.

Now, going on a little tangent, the same applies to your mortgage. This is why it’s important to consider taking out a 30-year mortgage instead of a 15-year mortgage because you have a lower payment to begin with. And by the end of that term, that payment is going to feel like nickels. 

Inflation is also impacting your death benefit. So if you start out with a death benefit, let’s say, to pay for a funeral. The longer you extend that payment period or the longer you live, the value of that death benefit is going to buy less of a funeral. You may not be able to pay for the band or the dinner. Maybe just the burial.

When I first started in financial services back in the mid-eighties, we were selling burial policies for $5,000, meaning you could have paid for a funeral for a little bit less than $5,000 and had some money left over. Today, you can’t touch a burial for anything less than $15,000.

So the point is inflation is always going to be there. It’s always going to be affecting us, sometimes positively, sometimes negatively. But the point is we’re going to have to deal with it. 

The only way to combat inflation on a long-term basis is with proper planning. If you’re ready to start planning for your future, whether it be premium planning or death benefit planning, 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.

Compound Interest vs Simple Interest: The Key Differences

Sometimes money concepts could feel complex, especially compound interest versus simple interest, and how they impact your life insurance policies. Interest is a very complex topic, the further you dig into it, the more complex it gets.

Every once in a while, we’ll hear that life insurance policy loans are calculated on a simple interest basis, and that’s not exactly the case. Let’s take a step back and look into the difference between compounded interest and simple interest.

Compound interest is where you calculate interest on your principal balance, plus the interest. Simple interest is interest that is calculated only on the principal balance. 

An example of simple interest would be a $10,000 deposit into a CD and it’s earning 4% interest. If it was calculated on a simple interest basis, you would receive $400 per year for the duration of the CD. Looking at this, we’d have a $10,000 balance, and the interest would only be calculated on that balance. Within those three years, we would only earn 1200 dollars worth of interest.

Now, when you compound interest, you’re earning interest on your principal, plus the interest that you earned. At the end of that three-year period, you actually earn an additional $48 and change because you’ve been earning interest on your interest.

But let’s translate it into how it affects our policy loans and paying back those policy loans, and how interest is calculated over the policy year.

Most life insurance companies calculate the loan interest due in advance. Basically what that means is you will be charged interest at the time of the loan if your policy anniversary date was today and you took a $10,000 loan and the interest rate for borrowing was 5%, your loan balance would be $10,500 because they charge you the interest in advance.

Another caveat with life insurance policy loans is, that as you make loan repayments, those repayments go towards reducing the principal of the loan, not towards the interest being charged on the loan. That’s why in many cases at the end of your policy year, you’ll get a bill for loan interest that may be due whether or not you’ve been paying on that loan all throughout the policy year.

Now you do have the option as to whether or not you want to repay that loan interest. If you don’t, it will accrue onto the loan balance and become part of that principal after your next policy anniversary. If we step back, this makes sense, you are actually in control of the repayment process. The insurance company charges the interest. The decision as to when and how you pay that interest is completely up to you.

Let’s look at an example of what this would look like.

Let’s say you borrowed $1,170 against your policy cash value via the loan provision, and you wanted to pay it back at the rate of $100.16 over 12 months. Assuming 5% interest is charged. A simple way to figure out the loan repayment is to use an amortization calculator.

With this, we’re able to see that we paid back $1,201.92, which is $31.92 of interest over that year. This could be calculated simply through the amortization calculator. However, the insurance company views things through a different lens. You’re working off of an amortization schedule based on $100.16 payable each month. But the insurance company looks at it from the perspective of saying, okay, we’re going to charge you 5% interest on the principal, $1,170, and you’re going to be paying this loan back at the rate of $100.16.

When you make your last payment. The insurance company will refund you any unused interest, meaning when you pay it back, you might pay it back in 11 months and 22 days and they will refund you the eight days of unused interest.

If you’d like to learn exactly how to put your life insurance policy to work for you, your business, or your family, 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. We’ll see you in the next one.

Taking Advantage of Opportunities through Your Whole Life Insurance Policy

You hear us talk all the time about using life insurance cash values to finance the things of life. Recently, we had a client who used her life insurance policy values in order to finance a home purchase.

Whole life insurance policies have something contractually guaranteed called a policy loan provision. And if you’ve been following our strategy for any amount of time, you know that we often recommend that our clients borrow against the equity or the cash value of their life insurance policies to take care of the things of life, whether it’s an emergency or an opportunity.

Recently, this client called us and said, “Hey, we have an opportunity to purchase some real estate. It’s an insider deal, but I need to close in 21 days. I don’t believe I can go and borrow from a bank and close within 21 days.” Because it was an inside deal, a sale from a family member, they didn’t necessarily need the inspection report because they knew the history of the property. Consequently, the client asked, how much do we have in the policies and how much can we borrow? 

Well, fortunately, there was enough equity in the policies that they could borrow against the cash value and make the closing within the 21-day period.

You see, this is a huge benefit and future of whole life insurance policies. You have a contractual guarantee to access the policy loans via the loan provision. And what this means is that it’s an unstructured loan from the insurance company to the policy owner. The policy owner is able to set up their own loan repayment terms.

The insurance company does charge an interest rate that goes to the insurance company, The client gets to decide how much and how often they make loan repayments to that policy loan.

And you see, having access to money when you need it is a huge benefit. And it’s a benefit that you get with cash value life insurance. Most financial frustrations come from not having access to money when you really want or need something. And the fact of the matter is when you have access to cash, opportunities tend to find you.

Here was a great opportunity for one of our clients to buy a piece of real estate that they loved and cherished. Keep it in the family. But more importantly, it was a great deal because they borrowed against the cash value, there were less in closing costs, they didn’t have to pay any bank fees, and consequently, that will all increase their overall rate of return. Not to mention the fact that they have complete control over the loan terms.

You see, with this process, you are in control of the process rather than being controlled by the process. And that’s not a small distinction. Now, the key to utilizing this process is to be an honest banker. If you were to go the traditional route and pay the bank X amount of money for X amount of years, whatever the amortization schedule stated, you want to do the same thing with your policy.

And you may be wondering why. Well, there’s a few reasons.

The first is loan interest. The quicker you pay off that loan balance, the less interest that’s going to be transferred to the insurance company as lost opportunity cost. The second reason you want to pay that loan back as quickly as possible is because you want to be able to be in a position to take advantage of the next opportunity. If you’ve borrowed out all of the equity against your policy, you have less equity available for the next opportunity. It’s a concept called inventory turnover. When you’re in control of your cash, you want to turn it over as quickly as possible. Meaning borrow it, pay it back, borrow it, pay it back. The more you turn it over, the greater the profits. And again, when you have access to capital, opportunities will find you.

With a mutually owned life insurance company, you’re entitled to non-guaranteed dividends. Meaning the profits of the life insurance company that come from, let’s say, policy loan interest, could be credited towards your policy in the form of non-guaranteed dividends but keep this in mind.

Once the dividend is declared by the insurance company, it is guaranteed. And once it’s paid to you, it could never reduce in value. The only non-guaranteed dividends are the ones that haven’t been declared yet.

So let’s take a look at what happened here.

We had a client who had an opportunity to make a great investment, and they had equity or cash value in their life insurance policy that they could access at their discretion. But they needed to close within a very short window, 21 days. Therefore, they borrowed against the cash value of their policy, reduced their closing costs, made the closing, made the investment, and now they’re in the process of paying back that loan. You see, liquidity use and control should not be something that’s taken for granted.

If you’d like to get started with building a cash-value life insurance policy designed for cash accumulation, schedule your free strategy session today. If you’d like to learn more about exactly how this process works, check out our webinar called “The Four Steps to Financial Freedom” which goes into detail about this exact process.

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.

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.

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.

5 Questions to Ask Before Choosing your Insurance Company

Not all life insurance companies are created equally. Some are better than others, and some are better for specific uses, like implementing the infinite banking concept than others. Let’s go over exactly what you need to be looking for in a life insurance company as you get ready to implement the infinite banking concept.

My father once told me there are no deals in insurance and this holds especially true for life insurance. So you want to implement the infinite banking concept. There are over 750 life insurance companies licensed to do business in the United States. Which is the best company for you?

So here are the questions you should be asking when you’re getting ready to implement the infinite banking concept. First and foremost, maybe the most obvious question is the company you’re dealing with a mutual company or a stock company?

Both stock and mutual companies have owners of the company. The difference is that the policyholder in a mutual company is the owner of the company as it relates to his or her policy, which means the profits that the insurance company makes on your policy are funneled back to you in the form of dividends when those dividends are declared.

Conversely, with a stock company, the policyholder is not necessarily the owner of the company. The owner of the company will receive the profits. If you’re a policyholder with a stock company and you are not a stockholder, you will not get the profits that the company makes on your policy.

Now, recently we had a client call in and say, “Hey, Olivia, am I able to have the dividends offset the premiums on my policy? I’ve had this policy for a long time. I should be earning dividends. My wife has the policy with the mutually owned company, and she’s able to reduce the premiums due on her policy using these dividends.”

And unfortunately, I had to tell him, “Hey, this company doesn’t declare dividends for their policyholders, so there’s no way to reduce the premiums due without cutting back on that death benefit.”

The second question you should be asking is, does the company have a track record of paying dividends? And more specifically, the company should have a minimum track record of over 125 consecutive years of paying dividends. That means the company paid dividends through World Wars, through depressions, through financial crisis.

And that’s the key. You want a company that has a long history of paying those dividends. Now, dividends are important to the policy because they do two things. They allow you to accumulate cash value within the policy on a tax favored basis. And also they buy up a little extra chunk of death benefit and increase that death benefit over time so you’re able to keep up with inflation.

The third question you should be asking is, is the company licensed and preferably domiciled, meaning that their home office is located in the state of New York? Now, why should that matter?

Well, simply put, the state of New York has the highest level of regulatory protection in the industry. And because of that, if a life insurance company wants to do business in New York, they have to follow New York law in the other 49 states. New York law limits the amount of commissions that could be paid. And again, if you want to be licensed in New York, you will have to follow New York law in the other 49 states. 

Here’s a little secret. If your insurance agent is selling you a policy and a company that’s not licensed to do business in New York, they’re able to get paid 100% of the first year’s premium, and maybe even more. Versus if you’re working with a company that is licensed to do business in New York. New York regulates the amount of commission that could be paid to the agent.

The fourth question you need to ask is, does the company recognize policy loans and therefore reduce my dividend? Because I’m taking a loan or is the company non direct recognition? And what does that mean?

Well, basically, if your company is direct recognition that means that they will give you a lower dividend if you borrow. And let’s face it, if the point of buying the insurance policy is to implement the infinite banking concept, that means you want to borrow. Why would you want to be penalized for borrowing or for doing the thing you want to do? It doesn’t make sense.

That’s why we recommend companies that are non-direct recognition. That means they will not reduce your dividend if and when you borrow against the cash value.

The last question you need to ask is does the company you’re about to work with support the infinite banking concept? You see, there are a lot of good insurance companies out there for other purposes. They support whole life insurance policies, universal life insurance policies, term life insurance policies, and they have great ratings.

However, there are other companies that really embrace the use of these policies and love that their policyholders are taking policy loans and also repaying them and fully embracing the infinite banking concept in their lives.

Are you ready to implement the infinite banking concept and you’re ready to choose a life insurance company? Check out our latest video where we go over the questions you should be asking the agent when choosing a life insurance company for the infinite banking concept.

The point is, there’s absolutely no sense in trying to put a round peg in a square hole if the company doesn’t support infinite banking, don’t do business with that company. It’s that simple. After asking all of these questions, you should be fully ready to move forward with the infinite banking concept and take back the finance function in your life.

If you’d like to learn more about exactly how to put this process to work for you, 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.

5 Reasons to Own a Whole Life Insurance Policy

Sometimes you’ll hear that whole life insurance is a bad investment. And let’s just get that off the table now, because life insurance is not an investment. Let’s go over five reasons why you would want to own a whole life insurance policy.

Life insurance is not an investment. In fact, to call life insurance an investment would be an insult to what life insurance can and will do for you. You see, investments, by definition, inherently have risk. And with whole life insurance, there’s no risk baked into this cake. In fact, all of the risk is transferred over to the insurance company. So it’s a very safe asset to have in your portfolio.

Let’s get started with the five reasons why you would want to own a whole life insurance policy.

Number one is to protect your family and your business. Remember, it is life insurance. And life insurance pays a death benefit if and when an event occurs. Meaning the death of the insured. And if that were to happen, the family may suffer financially, and the business may suffer financially. So at its core, life insurance provides protection to make sure that the family can continue and the business can continue. 

And I hate to break it to you guys, but we’re all going to die. So when that event occurs, that is when you want the death benefit to be paid out, when there’s a problem, no more income, no more principal running the business. These events are detrimental to the units and the death benefit could help you along the way. Let’s face it. Dying is bad enough. There’s no sense doing it for free.

Number two is the living benefits of whole life insurance. Whether you have a regular whole life insurance policy designed for death benefit or a specially designed life insurance policy designed for cash value accumulation. Either way, they have living benefits. This includes the policy loan provision that allows you access to your cash values throughout your life as the policy owner. One of the best parts of that loan provision is that when you borrow against your cash value, your money continues to earn interest, as if you hadn’t borrowed because it’s a collateralized loan. What that means is, you’re borrowing against the equity of your policy. Your equity never leaves the policy.

Number three is other benefits. These are special riders added to the policies that could allow you to have your premium waived should you become disabled, or chronic or terminal illness riders, that allow you to tap into the actual death benefit, that huge pool of money, before you die to take care of chronic and terminal care needs. And because of that rider, you’re actually allowed to tap into the death benefit on a tax favored basis. Which brings us to number four, tax benefits.

There are a ton of tax benefits with whole life insurance policy including tax deferred growth, a tax free death benefit and tax, favored access through the policy loan provision. Not to mention the fact that life insurance distributions are given favorable tax status, which means that the first dollars you pull out are considered the first dollars you put in. It’s called FIFO, first in, first out. Contrasting that to investments where the first dollar’s pulled out are considered the growth or the gain and therefore are taxable.

Here’s a life hack, if you’re considering deducting your premium payments that you’re putting into the policy, this is a big no no. You never want to do that because on the back end, it could cause your death benefit to become taxable.

Which brings us to our fifth and final reason why you would want a whole life insurance policy, and that is to supplement your retirement income on a tax-favored basis, As we mentioned earlier, the money is accessible on a tax-favored basis.

But what taxes do you save? Well, quite simply, federal income tax, state income tax, no Social Security offset tax, no increase in your Medicare premium. And let’s face it, by having to pay a higher Medicare premium, isn’t that really a tax?

Additionally, the death benefit passes to your name beneficiary on a tax free basis. And in most states, the death benefits pass outside of probate and outside of state inheritance or state estate taxes.

The long and the short of it is using your whole life insurance policy to draw from during retirement can save you a ton of money in the long run, plus, guarantee your legacy gets passed on to your heirs. And wouldn’t a great way to make sure that your money last as long as possible, be to avoid as many taxes as you possibly can in retirement? We have to protect our assets any way we can. And life insurance provides a great way to do that.

Check out our latest YouTube video to learn more.

If you’d like to learn more about how to utilize a whole life insurance policy in your portfolio, 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.

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.