Life Insurance

How Buy-Sell Life Insurance Can Benefit Your Business

There are a lot of things to consider as a business owner with a business partner. And one question that should be answered by any successful business owner is what will happen when my business partner dies?

When you go into business with a partner and they die, you’ll have two choices without a properly drafted agreement. Those options are really simple.

    1. Option one you’re now in a partnership or in business with your former partner’s family.
    2. Option two, you’ve got to come up with enough cash to equal the equity interest that your partner had.

So the simple solution is to draft a buy-sell agreement, which will detail exactly what you want to have happen when each partner dies. The buy-sell agreement is an obligation that literally tells what has to happen when one of the partners passes away. This brings us to the second part of buy-sell planning, which is funding. Where’s the money going to come from to buy out the partner? Do you have enough cash on hand or are you going to have to liquidate assets in your business? But if you liquidate the assets, how is your business going to function? This brings us to our next option and the best option for funding any buy-sell agreement, which is life insurance purchased on each of the partners that would produce liquidity at the time of death.

 

The buy-sell life insurance policy is the only option where the problem, the death of the partner, triggers the solution: instant liquidity to buy out their shares. Think of it this way, if you pay cash, you’re giving up that cash amount plus the interest that cash could have earned. You’ll never see the interest you don’t earn on that money. If you pay out over time it’s the same thing. You’re giving up control of the money, plus what that money could have earned. That would be an installment sale. But the third option, life insurance literally gives you a discount. You should never pay more for the business interest than you do for the insurance. The insurance should be discounted from what the principal or the death benefit is.

So the buy-sell agreement creates the obligation. The obligation can be paid either in cash if you have the money, in which case you’re giving up control of the cash, plus what that cash could have earned: opportunity cost. The second way you can buy out your partner is to borrow money from a bank to pay for his business interest. But will you qualify for a loan when you’re down one business partner? Will the business still continue to perform at peak level once that business partner is gone? And the third way is to buy life insurance. Life insurance could literally give you a discount on the amount of money that you need to buy out the partner. Often people look at insurance premiums as a cost, an obligation to dish out money to the insurance company every year. And no one wants to do that. But a simple reframe could shift it into an asset.

First of all, you have full liquidity use and control of any cash value via the policy loan provision that you have access to throughout the policy’s life. And number two, once your partner dies, it triggers an automatic death benefit to fund the problem of the buy-sell agreement. Your obligation to buy out your partner is solved with a snap of a finger. The event that triggers the problem, the death of a partner, is also the event that triggers the solution: life insurance death benefits.

I can’t tell you how many times I’ve seen very successful businesses, businesses that have been around for 40, 50 years that never address the buy-sell issue or they had a buy-sell agreement and it wasn’t funded. I could tell you of a manufacturing company been around for over 50 years – they never addressed the buy-sell issue. When one of the partners died, they didn’t have enough money to buy out the partner, so they had to borrow money. They borrowed money in 2005. Well, when the financial crisis hit, business went down. They didn’t have enough cash flow to pay for the loan and ultimately went bankrupt. That business had been around for over 50 years and went out of business like that because they never addressed the buy-sell issue.

It’s our mission to help as many families and businesses as possible to make the best financial decisions possible. If you’d like to get started with this conversation today, visit our website at Tier1Capital.com to schedule your free strategy session where we could do a deep dive into your situation and how we could meet your needs with a buy-sell life insurance policy.

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

How to Take Advantage of Compound Interest

Oftentimes people say to us, “Why would I pay interest to an insurance company when I can just pay cash?” Here’s the secret. Every purchase you make, whether you finance or pay cash, is financed. You’re either paying interest to a bank or credit card or losing interest by draining your tank.

Nelson Nash shared with me his four cardinal rules of finance and rule number one was think long term. And as I’ve had a chance to reflect on that, I’ve come to understand and appreciate
exactly what he meant.

Think long term? He was referring to compound interest and more importantly, uninterrupted compound interest. So the key is how can we have uninterrupted compound interest and still take care of all of the things in life that come up; paying for weddings, buying cars, medical emergencies, etc. And how do we continue to earn interest on our money and still take care of all of these issues?

 

Let’s take a look at what compound interest is. Basically, compound interest is when your interest earns interest. Albert Einstein once called compound interest the eighth wonder of the world. It’s very simple. There are only two factors that affect compound interest: time and money. And we can never get time back. That’s why it’s so important to start now and never drain the tank. Never pay cash for major capital purchases because you’ll never see the interest you don’t earn on that money. If we’re growing our savings but then we have to drain down our savings in order to make a purchase or to pay for an emergency, we’ve just violated thinking long term and we interrupted compounding of interest.

This is where borrowing money from an insurance company could actually help you make your money more efficient. How? Because we’re getting a collateralized loan, and that basically means our money never leaves our policy. Our money continues to earn uninterrupted compounding of interest, and we have a separate loan from the insurance company that we pay down. As we pay down that loan, our equity in the policy increases and that’s the secret to using other people’s money and taking advantage of uninterrupted compounding of interest. That leads us to our next point.

What is the difference between compound interest and amortized interest, and why would it make sense to leverage other people’s money at a cost when you have the cash available? Why not just take your cash and make that major capital purchase? Quite simply, compound interest grows on an increasing balance and amortized interest is charged against a declining balance. That’s why you actually earn more interest on a lower interest rate when it’s compounding, then you’ll pay on a higher interest rate for an amortized loan.

If you look at any loan, for example, a mortgage, you’ll see that in those beginning years, a ton of your payment percentage is going towards interest. But as that loan matures, more and more is going towards breaking down that principal balance on your loan. This is why you could earn more interest at 3% over a period of time compounding than you’ll pay amortized over that same period of time at 5% interest being charged. It’s a crazy phenomenon that a lot of people don’t understand. That’s why they’re giving up control of their money to pay cash for major purchases.

I’ll never forget about 25 years ago. I was speaking with the president of a bank and I explained this concept to him, the difference between compounded interest and amortized interest. He says, “Yeah, yeah, yeah, I understand.”, but he didn’t fully understand this whole concept. The difference between compound interest and amortized interest is the basis of the banking industry, yet this CEO of the Bank had no clue.

If you realize the power of compound interest, you would never drain the tank. You would want to maintain as much control over as much money as possible for as long as possible. That’s the key. That’s why you should always borrow against your insurance policy, gladly pay the interest to the insurance company because your money is continuing to earn uninterrupted compound interest for the duration of your ownership of that policy.

If you’d like to get started with the whole life insurance policy designed for cash accumulation,
so you could earn uninterrupted compound interest on your money, or so you never have to drain the tank again, be sure to visit our website at Tier1Capital.com to schedule your free strategy session today. Also, if you’d like to learn exactly how we put this process to use for our clients, check out our free webinar, The Four Steps to Financial Freedom, where we do a deep
dive on exactly how we put this to work.

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

Are you Unknowingly Giving Up Control of your Finances?

Do you make a great income but still feel stuck financially?

Well, you’re not alone.

Most of our clients don’t understand how to make their money as efficient as possible. That’s where we come in. We find money that’s hiding in plain sight, that people are giving up control of unknowingly and unnecessarily.

If you’ve ever met with a financial advisor, traditional financial advisors are really good at pointing out problems.

“You don’t have enough money saved for your kids to go to college. Therefore, you need to save more for college.”

“You don’t have enough money to fund your retirement income. Therefore, you need to save more money for retirement.”

But the thing is, you’re probably doing the best you can with what you have, and if you could save more, let’s face it, you would be saving more. The question is, how to do it?

This is exactly what makes us unique. We’re trained to identify where you’re giving up control of your money unknowingly and unnecessarily. And these are two keywords. Unknowingly, meaning you don’t realize you’re doing it. And unnecessarily, meaning a simple shift, sometimes just in perspective, can change what you’re doing that’s actually holding you back. It’s our mission to help as many people as possible make the best decisions possible financially, and oftentimes that means making their money work more efficiently.

 

What does it mean to make your money work more efficiently?

Well, it means putting your money to work for you, not the government, not the banks, and not Wall Street. Maintaining control of as much cash flow as possible is what will move you ahead financially. It’s not enough to point out a problem. It’s not even enough to offer a solution. What makes us unique is that we actually help you find the money within your current cash flow to pay for the solution. Basically, we would have minimal or no impact on your current cash flow to solve a problem and provide a solution.

There are five major areas of wealth transfer where we look for these inefficiencies in your personal economic model.

    1. Taxes
    2. Retirement
    3. Mortgage
    4. Education
    5. Major Capital Purchases

Identifying these five areas is literally how we find money that’s hiding in plain sight. Ultimately what happens is we can provide you with a solution to your problem with minimal or no impact on your current cash flow.

Let’s face it, none of us wake up in the morning and say, “Hey, how can I hold myself back financially today?” No, we think we’re making the best decisions that would be moving us forward. But what if what you thought to be true turned out not to be true? When would you want to know about it?

If you’d like to get started with our solution to find the money within your current cash flow so you’re able to achieve your financial goals sooner, visit our website at Tier1Capital.com to schedule your free strategy session today. Or if you’d like to learn exactly how we use this process to identify inefficiencies in the cash flow model, check out our free webinar where we go into 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.

Is having a paid-up rider worth it on my Whole Life Insurance Policy? | Tier 1 Capital

Are you thinking about buying a whole life insurance policy and wondering if it makes sense to add a paid-up additions rider? If that sounds like you stick around because we’re going to go over exactly why it may make sense to add that rider to your policy.

First of all, you may be wondering what in the world is a paid-up additions rider.

Quite simply, it’s a rider under the umbrella of a whole-life policy that allows you to put extra cash into the policy. That extra cash buys a paid-up additional life insurance policy. Think of it as a single premium whole-life policy under the umbrella of your whole-life policy.

 

So basically with this rider, you’re able to build up cash value quickly in the policy and no further premiums are going to be due to support that death benefit.

But how would that benefit you as a whole life insurance policy owner?

The first part of answering that question is that we have to step back and look at what a whole life insurance policy looks like without the paid-up additions rider. And in general, most whole-life policies have zero cash value in the first year, zero cash value in the second year, and very little cash value in the third year. So it’s not really efficient on its own without the help of a paid-up additions rider. That’s mainly due to the fact that the insurance company has to pay for setting up those policies.

There are a lot of expenses behind the scenes that need to be supported, and the insurance company takes care of those expenses upfront before building the cash value in those whole life insurance policies.

It’s a lot like building your own business. In the first few years, you’re not going to see any profits because you need to get that machine working efficiently. By design, a whole life insurance policy becomes very efficient after the fourth or fifth year. From that point forward, it literally gets better and better because, by design, the insurance company has to reserve more money to pay for the second promise, which is to have the face amount of the policy in cash at the age of maturity.

So by adding this paid-up additions rider, especially in the early years, we’re able to build up that cash value more quickly within the policy. You may be saying, “Olivia, I don’t even want to loan against my policy. I just want death benefit for my family, for my whole life.”

And I would make the argument that the paid-up additions rider still makes sense, even if you don’t plan on loaning against your policy. And here’s why.

The paid-up additions rider could give the policy a lot of flexibility down the line. You could think of it as prepaying premiums, in a sense, and that your policy has this extra cash. And if you become in a cash flow pinch down the line and can’t pay your premium, or can’t afford that cash flow to pay the premium, you could take a loan or surrender against that paid-up additions rider to fund those premiums. Your policy then remains in effect and at maximum efficiency.

One thing we’ve learned over 37 years in the financial services business is that life happens and things happen beyond our control that prevents us from being on a straight line and doing the things that we said we were going to do 20 years ago or ten years ago or even two years ago. Because of the paid-up additions rider, you’re literally building in flexibility for future premiums.

The last thing you want to do is five years down the line after this policy has been issued, say, “Hey, I don’t have the money to fund this premium and I’ve already paid all these other premiums. I’m just going to surrender the policy.”

After five years there’s not going to be a lot of cash value in that policy, and you’re going to lose all of the premiums paid and all of that death benefit forever.

And here’s the point.

You know, we had mentioned earlier that the policy becomes very efficient after the fourth year. So think of it this way. Right when the policy is becoming more efficient, let’s say you have a cash flow issue and you can’t make the premium. Having had the paid-up additions rider could give you some premium relief.

But think of it this way, if the policy becomes more efficient after the fifth year and it’s going to get better every year after that, it’s sort of like, the worst time to own the policy is in the first four years. You go through that and now just when it starts to get good, you walk away from it. You don’t want to do that. To walk away from a policy in the fifth year or later is analogous to buying a ticket to a movie, buying your popcorn and your soda, sitting through the previews, and just when they say, “Now for our feature attraction,” you get up and walk away. You would never do that and we would never suggest that you do that with a whole life insurance policy.

If you want to get the most out of your whole life insurance policy, you’re definitely going to want to add a paid-up additions rider of some sort. It acts as a bridge, so it takes these inefficient years and makes them more efficient. And after the policy becomes efficient, you could take off that rider and reduce the cost of the premium. But if you want the flexibility of being able to make more choices down the line and ensure the life of your policy, you’re going to want to add this rider.

If you’d like more advice on this, be sure to check out our website at Tier1Capital.com to get started. We have a button for a free strategy session or a web course on exactly how we use this process to make our clients’ cash flow more efficient.

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

How multi-duty dollars can fund the growth of your business


Are you a small business owner and looking to grow your business, but wondering how you’re going to retire one day?

If that sounds like you, stick around because today we’re going to talk about how you could continue to fund the growth of your business and still save for the future.

As small business owners, everyone knows that the number one issue is often cash flow. There are constant demands on our cash flow and the question of how do we manage everything?

Think of it this way. There are several types of cash flow to pay attention to.

Cash flow needed to operate your business.

Cash flow needed to reinvest in your business.

Cash flow needed to grow your business.

Cash flow needed to support your family.

With all of these demands on your cash flow. Every single day, it becomes incumbent upon you, the business owner, to make your money and your cash flow as efficient as possible so you can manage all of these demands.

The first step in making any change, is to acknowledge that there may be a better way out there and to be open to hearing about it.

 

Whenever we sit down with a business owner and it comes to the recommendation of doing a cash flow analysis.

They all say unequivocally, “Well, I’m using my cash flow properly,” or their CFO will say, “Well, we’ve already done this. We’re using our cash flow efficiently.” Or their accounting firm will say, “Well, you know, we’ve done the analysis. They’re using their cash flow efficiently.”

I’m here to tell you, you’re probably not using it as efficiently as you possibly can.

What does it mean to make your cash flow efficient?

Well, first of all, we like to get $1 to do the job of many dollars. And we like to make sure that the cash flow is working as hard as possible for you, not for the banks, not for other institutions, but for you, your business, and your family. So getting $1 to do the job of many dollars, we call that multi-duty dollars.

How do we get $1 to do multiple jobs?

The first step is to identify dollars that can be working harder for you. We usually find that in how you’re making major capital purchases and how you’re financing your debt. It’s not what you buy, it’s how you pay for it that really matters. That’s where efficiency can come in.

Recently we worked with a retail operation and they said they were using their money efficiently. The problem was they needed over $300,000 to fund their buy-sell agreement. The question was, where in the world were they going to find $300,000 to do that?

Well, we looked at how they were making major purchases and we looked at how they were handling their debt. Lo and behold, we found over $400,000. They were completely blown away. But again, it’s not what you buy, it’s how you pay for it that matters. So basically, we took the dollars that they were utilizing to pay off their debt and we converted it to create an asset that they can use to fund their buy-sell agreement.

So think about it.

We got $1 that was used for debt and we made it $2 by not only paying off their debt but also creating the asset that they needed to fund their buy-sell agreement. Multi-duty dollars. The same principle of converting liabilities into assets can be utilized for funding your own retirement or major capital purchases for your family, like sending your kids to college, or financing major purchases for your business, like equipment or vehicles for your business. 

Also, you could use it to expand your business so you don’t have to choose.

“Hey, I need to get out of debt as soon as possible. Let me put all my extra cash flow towards this goal.” You can achieve that goal, but also save along the way to achieve your own financial goals and put you in a more secure financial position.

So here’s the point. Over 35 years ago, I began working with a young couple who happen to be business owners, and I said, you know, let’s set up some life insurance that you can utilize along the way. Basically, this will be your exit strategy. You can borrow against the money for whatever you want between now and the time you retire. But then, when you retire, you can live off the growth of that policy. And sure enough, that’s what they did over the years. They borrowed against their policy to grow their business, expand their building, buy equipment and buy cars. They used it to educate their children, but they always borrowed and put it back.

Now, they recently sold their business. They came into a huge windfall and they’re getting all this advice to tie up their money to prevent themselves from having to pay taxes. But, because of all the work that we did, their legacy is intact and consequently, they can use the proceeds from the sale of their business to fund their retirement instead of their life insurance, and all of that money is now going to be utilized for legacy purposes for their children and grandchildren.

The point is we got $1 to do multiple jobs over a 35-year period, and it gave them the flexibility to do the things that they want to do for their children and grandchildren.

If you’re tired of giving away control of your cash flow, and you’re looking for a cash flow analysis. Feel free to hop on our website at Tier1Capital.com to schedule your free strategy session today.

Also, if you’d like to learn more about how our process works for families and business owners, check out our free web course, the Four Steps to Financial Freedom. It’s right on our website.

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

 

Why ‘Buy Term and Invest the Difference’ Strategy Might Not Be For You

When it comes to life insurance, many financial advisers out there suggest buy term and invest the difference. But that may not be the best strategy. And today we’re going to talk about why.

The main premise behind buy term and invest the difference is that the cost of whole life insurance is high and the cost of term life insurance is low. So if you have that in your budget, you’re able to still afford the death benefit, but you could invest the difference in the prices in the mutual funds and potentially earn a higher rate of return. Also, the premise assumes that you won’t need the life insurance coverage past a certain point.

 

The first issue with the strategy of buy term and invest the difference is real simple. They don’t invest the difference. So the problem is you’re setting up a strategy that you’ll invest the difference and you don’t. Now, maybe you will start out and invest the difference, but something is going to pop up in your life that’s going to prevent you from continuing to invest the difference. I don’t know what those things are, but it could be where you have a medical emergency, you’re buying a new house, or you’re sending your children to private schools. Anyway, the cash flow is pinched and the easiest thing to stop is the investment. So that’s the first issue.

The second issue, they never address, is what happens when there’s a significant amount of market losses and your account tumbles by 40, 50, 60%. Are you going to still have the diligence to continue to put the money into that account?

The third issue is what if you need life insurance beyond the guaranteed premium period? Let’s say 20 years. They tell you, you won’t need life insurance after that time period. But what if you do? And what if the reason you need the money or you need the insurance is because you didn’t get the rate of return that they promised. So we’re going to give you the benefit of the doubt that you will invest the difference. But life has a way of happening. And between market losses, between taxes, and having to access your money, will you continue to have the money that you’re thinking you’ll have? And more importantly, will you have the diligence to put the money away?

Keep these financial rules in mind.

    1. Start saving now.
    2. Never stop.
    3. Never drain the tank.

Buy term and invest the difference violates these key principles to any sound financial plan. Exactly how does it violate the principles? Well, at any point, you could stop saving in the mutual funds, whether your cash flow gets pinched or the market’s down so you’re not motivated to continue saving.

Number two is the tendency is when you need money for a car repair or a new car or to send your kids to school, that money is easily accessible, so you just sell the mutual funds and liquidate the account. But here’s the key you’ll never see the interest you don’t earn on that account. Our process uses a specially designed whole life insurance policy designed for cash accumulation to help our clients reach their financial goals. This product is great for goals because it sets them up to save on a consistent basis and allows them complete liquidity, use, and control of their money so they’re able to access their money without stopping compounding. They’re never draining the tank, but they still have access to their money with no questions asked.

Most importantly, you’ll have the flexibility to stop making payments, reduce your payments, and still continue to earn uninterrupted compounding on your money. This method is great because it locks in your insurability and that level premium cost at a younger age than with the by term and invest the difference method.

If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation so you could reach your financial goals, be sure to visit our Web site at Tier1Capital.com to get started today. Feel free to schedule your free strategy session or 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.

5 Best Tips For Financial Success

So your cash flow is tight, but you still want to set yourself up for financial success in the future. If that sounds like you stick around to the end of this blog because today we’re going to go over five things you could do right now to set yourself up for success.

Let’s get started with the five things you could do today to move you ahead financially down the line, whether you’re just getting started or maybe your income isn’t as high as you’d like it to be, these things can make a huge impact on your financial future regardless. 

The first thing you can do is to start saving today, no matter how small the amount. There’s an old proverb that says “The journey of a thousand miles starts with one step,” and that’s the key. Pay yourself first, no matter how small that amount is. That’s right. Start saving and start saving on a consistent basis. These days we have so many subscriptions and auto-pays and everything else in our checkbook every single month and it seems like there’s always more. Pay yourself first. No matter how small the amount. 

This brings us to number two: never drain the tank. Keep this in mind. You’ll never see the interest you don’t earn. Once you put that money aside for savings for your future self, don’t drain the tank. Don’t use it to go on vacation. And don’t use it to go buy your car. Now, we’re not saying don’t use that money. What we’re saying is to use your money in a way that you’re able to always continuously earn compound interest on the money. So it’s always working for you, but you’re using other people’s money to make your money more efficiently. It’s the key fact. Leverage will move your head. Never drain your tank. 

The third thing you can do to move forward and set up your future self is to live within your means. For many of us, that might mean that we need to set a budget and stay within that budget. 

Number four: keep your savings liquid, and free from taxes, losses, and government regulations. Conventional wisdom teaches us to save our money in places where it’s inaccessible, places like qualified retirement accounts like IRAs, simples, SEPs 401k’s or 403b’s. Where we have to pay a penalty if we access before age 59 and a half and at all times we have to pay taxes, and it’s taxable as income when we access that money or non-qualified accounts where the growth is taxed every single year on that account. And we all know you can’t accumulate wealth in a taxable environment. 

Rule number five is probably the most important. Not all debt is bad, especially when you own your debt. You see, when you own your debt, you’re in control of the terms and conditions of that debt, meaning that you can set up the interest rate. You can set up the payment plan. You can set up how the money is going to be used. The bottom line is you’re in control. But think of it this way. Before you pay that loan, you control the value of that payment. 

Let’s say it’s $450. So, this month, you control $450. The next day, when you make a payment to a credit card or on a car loan, you no longer control that loan. The lender controls that $450. Now, here’s the key. When you control your debt and you own your debt, you get to control the payment before you make the payment and you get to control that same amount of money after you make the payment. That’s complete control. And that’s why we’re sticklers for putting our clients in control of their money. Why? Because when you’re in control of your money, you’re in control of your cash flow and you’re in control of your life. 

Think about it this way. When it comes to owning your debt, it could be likened to having money in your pocket and sliding it over to your right pocket. At all times you have full liquidity, use, and control of that money. The bottom line is this, when it comes to your money, keep it in your pants. 

If you’d like to get started on your financial journey, visit our website at Tier1Capital.com. We have a free web course, The Four Steps to Financial Freedom that goes through our process step by step and could show you how to get ahead financially.

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

Pros and Cons of a Disability Waiver of Premium

So you’re thinking about getting an Infinite Banking Concept Policy and you’re wondering, “Should I include a disability waiver of premium or not?” If that sounds like you, stick around to the end of this blog post because today we’re going to cover top to bottom why a disability waiver of premium may make sense for your situation.

A lot of times when agents are designing an IBC policy, they’re solely focused on the rate of return. So they don’t end up including any riders that have a cost to them, like the disability waiver of premium. 

But keep in mind for sure, having disability waiver of premium will reduce the rate of return. And depending on the company you’re using, they may only charge the rider on the base policy, so the cost is going to be negligible. And again, depending on your situation, it may be well worth having that extra protection in case something happens to you. For example, you get sick or injured and cannot work, therefore you have no money coming in. And then the question becomes, how are you going to pay for the policy? 

So, let’s take a step backward. What exactly is the disability waiver of premium rider and what does it do and why would you want it? Well, the disability waiver of premium rider is a rider on the policy that has a small cost that ensures your premium gets paid even if you’re not paying it yourself. So if you become disabled and unable to work, the insurance company is going to cover the cost of your premiums. And depending on the company you go with, they may cover the costs of the premiums for the base policy and any riders included on that policy. 

So we think if that’s the situation, it may very well be an advantage for you to include that rider primarily if you’re the main breadwinner in your family or you’re a dual-income family and you’re depending on your income for lifestyle and savings. 

So think about it, right now you’re designing your IBC policy and you have certain goals in mind of how you want to use that policy. Why would those goals change if you become disabled? Just because you’re not working doesn’t mean that your financial goals are going to change. Keep this in mind: you can always take the rider off of the policy. However, if your policy isn’t issued with the disability waiver of premium, you can’t go back and add it on later. So, it’s something you should really put some thought and consideration into, especially if you’re a younger person, let’s say, under age 50. 

So now let’s take a look at what happens if you get disabled, you’re unable to work, and you did not have the disability waiver of premium rider on your policy. So, if you don’t have the rider, the first thing you have to ask yourself is: is there enough cash in your policy to keep the policy going if you can’t make the premium payments? Another question you have to ask is: how are you going to make those premium payments? And the third question would be, again, if you’re disabled and you didn’t have the rider, how is the policy going to continue and how are you going to use and/or access the money in your policy going forward if there are no premiums going in? 

Think about this, if you have an IBC policy properly designed with the waiver of premium rider and you become disabled, and hey, maybe your financial goals have changed, maybe your new financial goal is to maintain your lifestyle and your financial security, which is a great goal. This properly designed policy will allow you to do it. You’ll have complete liquidity use and control of that cash value with no questions asked, which is very important at this time of your life, because let’s face it, you have no proof of income. Traditional means of accessing money from a bank or credit card are now going to be difficult because you have no source of income and the premiums are being covered by the insurance company. Imagine the peace of mind that comes with that. 

So keep in mind having the rider on a policy protects not only your income, but also think about it, the policy has a death benefit and the reason you’re setting it up is to be in control of your finances and to be in control of your money. Why should those goals change if you become disabled and you have actually less money coming in? And as we mentioned earlier, the cost of the rider is generally negligible. It’s a very small amount. And more importantly, insurance is a transfer of risk to begin with. So you’re transferring the death benefit risk. But more importantly, now you could transfer the disability risk all for a negligible cost. So it may be beneficial to you to include that rider in the policy design, especially if the cost is very small. 

Although, IBC policies are designed for maximum cash accumulation, so you maintain full liquidity use and control of your money throughout your financial journey at the end of the day. We do use a life insurance policy to accomplish that. 

If you’d like to talk about whether the disability waiver of premium makes sense for your situation, be sure to check out our website at Tier1Capital.com to get started today. If you’d like to learn more about our process, click on our website to watch 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.

5 Essential Rules of the Infinite Banking Concept

Do you have an IBC policy or are you thinking about getting one? If that sounds like you stick around to the end of this blog post because today we’re going to go over the four essential rules that need to be followed for any IBC policy to be put to work for you.

Rule Number One: Think Long-Term.

In Nelson Nash’s book, Becoming Your Own Banker. He explicitly says you have to think long-term. Remember, he was trained as a forester, so he thinks 70 years in advance. And like Nelson would say, “I will not be here. And probably neither will you. But somebody will and they will pay the price of you, not thinking long term.”

So what does this look like when it comes to designing your IBC policy? Well, it can look like maybe putting 10% of your premium towards the base policy and 90% towards the PUA, the paid-up additions, and the cash value part of that policy. And what that does is it directly violates rule number one. Think long-term.

So with this design, you’re getting a lot of cash value upfront, which could be great for your short-term needs. Maybe you want to make an investment as soon as you place the policy.

But what about the long term? How is this policy going to serve you and how is it going to serve you best? And it’s usually not with a 10/90 split.

Keep this in mind. When Nelson Nash discovered the infinite banking concept, there was no such thing as a paid-up additions rider. Because he was a long-term thinker he realized that he had to get the premiums, the base premiums of his life insurance to equal his mortgage. And then he knew at some point the cash value build-up would be four times his mortgage, allowing him to weather any financial storm created by inflation or manipulations in the financial markets.

Rule Number Two: Don’t Be Afraid to Capitalize.

And what Nelson meant by that was don’t be afraid to put in as much money as possible for as long as possible. Again, the temptation might be to do the 10% base, 90% paid-up adds. And that might work for some people who want to use their policies more aggressively early on. But what we found is, again, people are long-term in thinking and the best or the most efficient way of funding a policy or capitalizing your policy is 40% base, 60% paid-up additions.

Let’s take a step back here. When we say don’t be afraid to capitalize, we also don’t mean overextend yourself. If you’re looking for ways to make your cash flow more efficient, and to fund your policy more, we could help. Visit our website at tier1capital.com to schedule your free strategy session.

Rule Number Three: Don’t Steal The Peas.

If you’ve read the book Becoming Your Own Banker, I’m sure you remember the example of the grocery store owner and the temptation of them stealing the peas, going out the back door with their groceries, and not paying for them. So what he meant by that was if you are going to set up an IBC policy and you are going to borrow against your policy, make sure you put the money back, because if not, you are no better than the grocery store owner who goes, who bypasses the cashier and goes out the back door with his groceries. You’re stealing the peas and you cannot and will not or should not do that.

Rule Number Four: Don’t Deal With Banks More Than You Have To, Especially For Access To Cash Or Borrowing.

What did Nelson mean by that? He fully understood fractional reserve lending. He knew that if you pulled yourself away from the fractional reserve lending system and went to infinite banking, which is 100% reserve lending, he knew that you would no longer be contributing to inflation in America, and more importantly, you would be in control of the financing function in your life.

So let’s recap the four rules.

  • Number one, think long term.
  • Number two, don’t be afraid to capitalize.
  • Number three, never steal the peas.
  • And number four is, don’t deal with the banks more than you have to.

In January of 2019. I got a phone call from Nelson Nash and we chit-chatted for a little bit and Nelson said to me, he said, “Tim, I need to rethink my four rules. I think I need to add another rule.”

I said, “Nelson, what? What would that rule be?”

And he said, “Real simple. I’m going to graduate from this world one day and I’m going to leave my family a significant amount of death benefit. And if they don’t have large enough holes in their policies, they’re not going to have a place to store that money. I think we need a fifth rule.”

Rule Number Five: Make Sure That You Have Enough Holes in Your Policies to Accommodate a Windfall.

So that could be in the form of a policy loan against your policy or having term insurance that you’re able to convert into new policies when that windfall happens.

If you’re looking to regain control of your cash flow and put these four plus rules to work for you and your situation, we’d be happy to help. Visit our website at tier1capital.com to get started today. You could schedule your free strategy session or check out our free web course where we go through a deep dive on how we put our process to work for you.

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

What To Look For Before Choosing A Term Life Insurance Policy

Are you shopping around for a term life insurance policy and looking for the best rate? Here’s a secret – there are no deals and life insurance. Today we’re going to go over exactly what you need to be looking for while shopping for a term policy and it’s not only the price. 

Fundamentally, insurance is a transfer of risk from the insured to the insurance company. You’ll hear us say that with term insurance, there’s really only one benefit, and that’s the death benefit. You’re paying the premium and if you die within the term, the insurance company will pay the death benefit to the beneficiary. But there are some ancillary benefits when it comes to term insurance that you need to consider so you can make the best decision for your situation. 

There are three main benefits or ancillary benefits that you should be looking for when looking for a low-cost term policy:

    1. First is a Terminal Illness Rider. Basically what that means is if you become terminally ill while you own the policy, the insurance company will allow you to tap into the death benefit on a tax-free basis to allow you to pay for those terminal illness-related expenses. 
    2. The second is a Disability Waiver of Premium. This is important because should you become totally disabled, the insurance company will continue to pay the premium for you. But with some companies, it’s even better what they allow you to do while it’s a term policy and you’re totally disabled, they will allow you to convert that policy to a whole life policy and waive that premium. A very important benefit.
    3. Probably the most important ancillary or extra benefit is the ability to convert that policy somewhere down the road to a Cash Value or Whole-Life Policy. 

So you may be wondering, what does it mean to have a convertible term policy? Once you get that term policy, your insurability is locked in and you could convert that policy from a temporary term policy to a permanent cash value life insurance policy with no underwriting required. It’s a contractual guarantee for a set amount of time determined in your contract to make that switch from term to perm. 

The key here is that whatever underwriting requirements the insurance company uses to determine your eligibility for the term policy follows directly through to the conversion. So you don’t have to take another exam even if your health changes. 

Health changes are one consideration, but the next consideration is cash flow changes. As we go through life we all know that cash flow needs are always changing. So right now your cash flow may be pinched and you may need that death benefit for a loan or to protect your family should you die prematurely. But down the road, you may be cash flush and say, “Hey, I really want to put this policy to work for me and my situation, my business, and my family, let’s convert a piece of this.” The application is so simple, you just basically fill it out, sign it, and then send it in and you get the policy in the mail.

So keep in mind, that you’re not asking permission or approval to get the policy you’re literally giving the insurance company an order to change it from term to permanent or cash value insurance. 

This brings us to our next point. It’s important to choose a strong insurance company when you’re getting this term policy so you’ll have a strong dividend-paying life insurance policy when you choose to convert it down the road. This takes us back to our main points or key criteria when choosing a life insurance company.

    1. First and foremost, it should be a Mutual Insurance Company. Why? As a policyholder with a mutual insurance company, you are literally the owner of the company as it relates to your policy. Therefore any profits that the insurance company makes are funneled back to you in the form of tax-free dividends.
    2. Secondly, we want that company to be Non-Direct Recognition. Why? Because if you intend on borrowing against your policy, you don’t want to be penalized by getting a lower dividend from some companies. And believe it or not, some companies do that.
    3. Third, you want the company to be licensed and preferably domiciled in the state of New York. Why is that important? Because the state of New York has the highest level of regulatory protection for the policy owner.
    4. Fourth, you want that company to have a significant track record of paying dividends over 125 consecutive years. Think about it, if your company has paid dividends for over 125 consecutive years, they’ve paid it through world wars, depressions, recessions, you name it. They’ve weathered the storm and still have delivered profits back to the owners of the company, their policyholders.

Now, the temptation could still be there to think short-term and with life insurance, it’s a long-term play. Whether you realize it now or not. Maybe you’re about to have your first child and now you need a death benefit to protect your family. Or maybe you are in the process of obtaining a loan and need some death benefit to collateralize against the loan for the bank to approve it. But the key is to think long term so you could be in the best financial decision going forward. 

We have seen over the past 37 years, so many times when people bought the lowest cost term policy and their health changed and they wanted to change that policy because their cash flow was better and their needs were now permanent. Unfortunately, the company they placed their insurance with originally doesn’t have a whole-life policy or is a stock-owned company, which means the profits go to the stockholders, not the policyholders. These are issues that need to be addressed upfront. Like we said in the beginning, there are no deals in life insurance. 

Keep this in mind: our health is precious. We all know it could be there one day and the next day you could be uninsurable. And we’ve seen this, unfortunately, so many times. People who are considering life insurance and then not acting on it and then two weeks later, something happens and they’re no longer insurable. That’s the last thing we want to see. Our health is our most valuable asset. Without it, nothing else matters. And we know this now more than ever. Keep in mind, when we buy life insurance, we pay for the policy with dollars to pay the premium, but we qualify with our health. 

If you are looking for a quality life insurance policy that will carry you from now into the future, be sure to visit our website at tier1capital.com 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.