Lifestyle

Power of Infinite Banking: Why It Takes Time to Recapture Your Investment

Are you thinking about implementing the infinite banking concept? But you don’t quite understand why it takes ten years to recapture the money that you put into the policy.

One of the most common complaints we have when speaking to people about the infinite banking concept is that they’re not going to have all of their money back for a full ten years at least.

So you may be wondering, Yeah, why does it make sense to put money in a whole life policy? That’s a lousy investment. It’s going to take me so long to break even and then earn a rate of return on that money.

So let’s go back to the basics.

Nelson Nash originally had four cardinal rules as it related to infinite banking, and his first rule was to think long term. You see, Nelson was trained as a forester. He was trained to think 70 years in advance. And as he would say, I’m not going to be here to see the fruits of my labor. But somebody will and they will benefit handsomely by my good judgment.

So first and foremost, you’re being future thinking. You’re not thinking about the death benefit. You’re thinking more so for the cash availability. And it’s just like planting a tree. You plant a tree and it takes a long time to see that tree grow, but all of a sudden, one day, you go out in the backyard and my gosh, you’ve got a tree that’s taller than you. And that’s the way it is with life insurance. There’s a start-up cost. Nelson used to say it’s sort of like starting a business. Very few people start a business and become profitable on day one. 

The fact of the matter is time takes time and you’re not going to wake up one day and just have a pool of money sitting in a life insurance policy. Now, in some cases, there is availability to be able to put a large sum of money within the policies. But it’s still going to take time for that money to grow and compound. But the key here is to be able to access the money everywhere along the way. As your policy becomes more and more efficient with time, you’re able to access more and more of that cash value.

Yes, it might take ten years to realize a profit on that policy. But you don’t have to wait ten years to get your money as the cash value appears, you could borrow most of that or borrow against most of that cash value and deploy it in your life.

Use it to pay down debt. Use it to make purchases. Use it to make investments.

Whatever you decide to do with that money is completely yours. And here’s the key, however you decide to pay back that money to the insurance company, that’s your decision as well. That’s what Nelson realized by using the life insurance company’s money borrowing against the equity in your policy puts you in control of the financing function. And that’s the bottom line. That’s the golden rule. That’s the reason to be. That’s the reason why we recommend this concept because it puts you in control.

Americans are being squeezed from many, many different directions. Inflation is up. It costs more for goods and services. Our pay is down. Our revenues are down. Our profits are down. Inflation is eating into everything. Interest rates are higher. It costs more money to borrow from the banks and the credit companies than it has in over 15 years.

It’s affecting our health. It’s affecting our relationships. It’s affecting our ability to run our companies or do our jobs. It affects everything because it’s always top of mind.

But, there’s a way out of this. There’s a way that you could now be in control of this process rather than being controlled by this process. And that’s what the infinite banking concept can bring to you.

If you’d like to get started with a specially designed whole life insurance policy designed for cash value accumulation so that you could be in control of your finances rather than being at the mercy of the economy, banks, and the government. Be sure to schedule your free strategy session today. We’d be happy to speak to you about your specific situation and how we could help move you and your family and your business forward for generations to come.

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

Exploring Limited Pay Policies in Infinite Banking

When it comes to the infinite banking concept, the traditional design is a life paid-up at age 100 or 121 with a 40/60 split, 40% base policy, and 60% to paid-up additions. But sometimes we think it can make sense to do a limited pay policy, whether that be a 10 pay, a 20 pay, or a paid-up at age 65.

When it comes to designing a whole life insurance policy designed for cash accumulation, most agents use the 40/60 split, as illustrated in Nelson Nash’s bestselling book, Becoming Your Own Banker. So this design is used to have a substantial piece of the premium going towards the base policy because those are very efficient by nature and actuarially designed to get better and better every year, and a substantial piece going towards the paid-up additions. Those paid-up additions allow us to supercharge the cash value, accumulation, and accessibility in those early years of the policy.

Typically, you could leave that paid-up additions rider on for anywhere from 5 to 10 years, and at that point, the policy is efficient on its own and you could drop that premium down. The second piece of that design is the life paid-up at age 100 or 121, meaning the base policy premiums are going to be payable until the insured reaches age 100 or 121.

The thinking behind this is we want to be able to put money into our banking policies as long as possible. And while that is the goal, again, to allow us to be able to put money into the policy as long as possible, we also have to be cognizant of the fact that when you get into retirement, let’s say in your late sixties or seventies and you’re no longer working and you’re living off your investments or your savings, your cash flow is limited.

What we found is that some people get into retirement years and they don’t think they have the money to put into these life insurance policies. and that’s unfortunate because they’re probably thinking about things incorrectly. But because we’ve seen this mindset over and over, we have begun to implement limited pay policies, policies paid up at age 65. What that means is there are no more premiums after age 65.

Now we also know that people will be looking for places to put money beyond retirement years. So the point is this: why do we recommend the limited pay policies? Well, as someone in my thirties, I know that at age 65, I don’t plan on working any longer, but I still want to be able to utilize this concept while I’m working, in fact, these policies still continue to grow and compound interest even after age 65.

So what’s the downside really? Well, the only one that I could think of is I’m no longer able, I no longer have the ability to put money into that policy, whether I want to or not. But if you recall what I said earlier, we do this for younger people. Why? Because they have the option of buying the limited pay policy.

When you get into your fifties, your options for limited payment start to reduce. And if you’re understanding the infinite banking concept, you may want to buy more policies in your fifties and sixties. Those policies certainly will be paid up at age 100 or age 121. So your option for limited pay policies is off the board as you get older.

But if you have a situation where you have premiums stopping at age 65, that gives you the wherewithal or the ability to fund the other policies that you purchase later in life with the cash flow that you would have from retirement.

If you’d like to get started with an IBC policy, a policy designed for cash value accumulation, be sure to schedule your Free Strategy Session today. We’d be happy to speak with you.

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

Harness the Potential of Life Insurance: Creating a Family Banking System

Imagine having a pool of cash that you own and control that’s large enough that neither you nor your family ever has to use traditional banking systems ever again. Now there may be an interest that needs to be paid on those loans, but imagine having death benefit to recoup the interest lost over those years of financing through this family banking system. That is power.

So here’s a recent example. We have a client who set up a policy several years ago and had absolutely no intention of borrowing against the cash value. The policies were purchased to fund a buy-sell agreement and to create an exit strategy for the principles in this business.

At the time of purchase, I had mentioned “Hey, this money is accessible if you need it.” But think of this. The interest rates that they were able to get from a bank were about two, two, and a quarter percent on a business loan.

Well, fast forward to last week. He had just purchased two trucks and had called and said, “Hey, what’s the interest rate to finance if I borrowed against my life insurance?” We told them it was 5.35%. His response was, “Sign me up.”

Whoa, what changed? He goes, “Well, it’s real simple. We borrowed to buy these trucks on our credit line. I got the interest statement. It was nine and a half percent.”

So think of this, he was going to pay 4% more interest on the same amount of money. That was an increase in interest payments of 75%. The interest rate is one thing, but a more important thing is that he was able to call up and say, sign me up. And that’s literally all it took. We sent him a form. He’s going to sign it, send it back, and submit it to the insurance company, and they’re guaranteed to send him the money because he has access to the money. This is the importance of having liquidity, use, and control of your money and regaining control of that finance function in your life. 

When he draws on his credit line, every couple of years he has to provide financial statements and literally reapply for the privilege of getting that loan. And what happens if he doesn’t qualify? No loan! And what if he has a balance? Well, if he has a balance, the balance comes due. The point is that the bank is always in control, but when you’re borrowing against your insurance, you’re always in control. 

So let’s transition over to how this could apply to your family banking system. By creating these policies, they become pools of cash, money that you have full liquidity, use, and control of that you’re able to use while you are alive. So you are able to take loans for yourself. Maybe you’re going on vacation, sending your children to college, getting out of credit card debt, or putting a down payment on the house, the options are limitless.

Imagine that you have a pool of cash large enough that you’re able to take control of the finance function for your family members as well. So imagine your children want to buy a house, want to start a family, want to start a business, want to buy a car, want to get married. They come to the family bank for financing because heck, since we are dealing with life insurance, one day hypothetically, this death benefit is going to be passed along to them anyway. So they’re borrowing from the family’s money that’s going to be passed on to the family, and they’re still entitled to a death benefit.

A death benefit that’s tax-free, that’s passed outside of probate, and that’s guaranteed that will allow you to recapture those costs, those finance costs, those insurance costs in the long run, and allow you to create generational wealth for generations to come.

This really underscores the importance of being in control of your money. If somebody else is controlling your money, they’re controlling your life.

If you’d like to learn more about how to put a family banking system in place for you and your family and your business, hop on our calendar by clicking the ‘Schedule your Free Strategy Session’ button. We’d be happy to chat with you about your specific situation.

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

Financing vs. Debt: Making Your Money Work Smarter

Do you realize that we finance every single purchase that we make, whether we pay cash or borrow? Conventional wisdom has taught us that debt is bad and should be avoided at all costs. So what’s the difference between financing and debt?

Let’s start off with defining what debt actually is. Debt is making a purchase any other way than out of monthly cash flow, which means you have to finance. Now, what people don’t realize is if they borrow from a bank, they understand that they’re financing with the bank. What they don’t realize is that if they’re paying cash, it is actually a form of finance. It’s called self-finance. So you’re either going to pay interest to a bank or give up interest by paying cash. There’s no other way around that.

This concept is called opportunity cost, the cost of the interest that your money could have earned had you not spent it. One of the basic things that I’ve seen is that most people don’t realize that most or all of their debt is incurred to pay or fund current lifestyle expenses. They’re paying for their current lifestyle by either borrowing from a bank or a credit company, or liquidating assets. This is more true than ever with sky-high interest rates as well as inflation. The costs of goods and services are sky-high right now, and our income oftentimes isn’t keeping up.

So let’s look at some data. In Q4 The New York Fed came out with their household credit report. Household credit is up $16.8 trillion, which is up 2.2% from Q3 of 2022. Credit card debt topped $986 billion in Q4, which was up 6.6% from Q3 of 2022, which was the highest quarterly growth rate ever recorded. Now, in Q2 of 2023, credit card debt soared over $1 trillion for the first time in history. So, yes, debt is up. So the proof is in the pudding. Most people right now are supporting their current lifestyle. They’re not reducing it because the costs of goods and services are going up. They’re maintaining it using their credit cards.

So again, let’s take a look at what debt is, right?

When you’re in debt that means you’re obligating your future earnings to pay for something you bought today. Now, if you don’t have the assets to back up the cost of the purchase, you’re in debt. What we’re talking about is collateral. Does your debt have a piece of collateral to support that debt should something go wrong?

For example, a car loan has the collateral of the car. A mortgage has the collateral of the property. You’re not in debt If you borrow $10,000 and you have $10,000 in assets. If you borrow $10,000 and you don’t have $10,000 now you’re in debt. And if you’re liquidating your assets because you don’t want to be in debt, eventually, you deplete all of your assets and now you’re stuck with only one choice, which is to finance. Trying not to get into debt, only to get into debt doesn’t make sense. It’s a slippery slope. 

One way to combat this is with a specially designed whole life insurance policy designed for cash accumulation. With these policies, we’re able to help our clients build a pool of cash that they own control and have access to with no questions asked. That way they’re able to collateralize against that cash value access money from the insurance company and go off and purchase their major capital purchases, whether it be cars, weddings, vacations, other investments, real estate property, or starting your own business. The possibilities are endless.

The key is the insurance company will not loan you more money than what you have in equity in your policy. So you’re never in debt. You’re financing your choosing to use somebody else’s money to make your money more efficient. That’s the moral of the story. How can you make your money more efficient by using other people’s money? And that’s what we teach our clients. We teach them the difference between debt and finance, and we teach them how to choose the right path for them.

If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation, be sure to schedule your free strategy session.

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

Optimizing Your Infinite Banking Strategy

One of my most frequently asked questions is how many policies should I have and whether is there a benefit to having one big policy versus several smaller policies. When deciding what the best policy for you is, you may be wondering how much premium is too much premium and what is the benefit of having multiple policies working for you.

And the answer is, it depends. It depends on how much income you have, how many assets you want to use or deploy into policies, and whether you have business interests. Do you have a family? How many children do you have? All of these factors weigh into making the proper recommendations for you.

You see, the bottom line is this going into this, it’s all about you. It should never be about the adviser. Unfortunately, we have seen several times where the adviser put their interest in front of the client.

When thinking about how much premium to use, I always ask the client what’s a comfortable number for you. How much can you afford to save on a monthly or annual basis? Using our growth process, we’re able to find the money, money that you’re giving up control of unknowingly and unnecessarily.

But the question still comes back to you, how much of that money do you want to use to get started with this process on your path towards financial freedom? We could never answer that for you because it’s not our money. And you see, that’s one of the keys to having a process where we could actually find additional money for you.

Recently, we worked with a client who said that they could afford to put away about $1,000 per month, and that was great. We set up their initial plan using the $1,000 per month. But in the course of working with our process, we found an additional $1800 per month that was already in their cash flow. It was just being utilized inefficiently.

My response to them was, “Hey, here’s another $1800. What do you want to do with it? Do you want to put it in your lifestyle or do you want to continue to save and add to your program?” Their response was, “Well, it was already in our cash flow. We basically don’t need it for lifestyle. Let’s save it.” The bottom line was we let them know that at any time they could cut that $1800 in half if they wanted to, because of the way we had structured the plan.

So the question remains, how many policies are too many policies? Do I really need more policies? And for me, I have multiple policies because when I got my first policy, I was 22 years old, fresh out of college. I couldn’t afford much premium. However, as I built my income year over year, I was able to put away more and more of my money because my goal is to save 20% of my income. And for me, my policies are a way to do that in a structured way where I don’t have to think about putting money away because it’s automatically deducted from my bank account.

And basically, I was in the same situation. I started off with small policies. And then as time went by, I built larger and larger policies. And I’m saving over 25% of my income. But the bottom line is you have to find a place that’s comfortable for you. And that’s where we could help you,

It’s not enough to say how much can you comfortably afford. The question is really how much can you comfortably afford in good times as well as bad? Another thing to consider is these policies are actuarially designed to get better and better over time.

For example, in the first policy year, you could expect about 50% of that premium deposit to be available in cash value. However, in the fifth year, I could expect, dollar for dollar, once I put that premium in, I’ll have a dollar of cash value that I could leverage against.

Allowing that laddering effect could allow me to have an efficient policy and then build on build on my policies with another policy and allow that one to get efficient as I go along in life.

But see, the bigger question is this: it’s not so much how many policies should you have. It’s really what kind of policy should you have. Should you have extended pay or compressed pay? And that’s where we can help as well.

So here you are, you want to get started with the infinite banking concept so that you can control the financing function in your life, but you’re not sure how many policies you should have or where you should start. Therefore, we created a process that’s client-focused so that we could help you get clarity as to how much you should be starting with and how many policies you should have.

If you’d like to get started with this process, schedule your free strategy session with us today. And remember, it’s not how much money you make, it’s how much money you keep that really matters.

The Power of Leverage in Financial Planning

When on a search for financial freedom, there are a lot of different opinions out there and it can be hard to decide what is the best decision for your situation.

The other day, I was having a conversation with a prospective client, and they mentioned that they had $1.2 million in cash, and they were looking to put money to work for them. So before our conversation, they had put $500,000 into a piece of property. After learning about the infinite banking concept, they were rethinking their decision because, yes, now that money was put to work for them, but they realized now that they could be leveraging that money to do more than just produce one piece of property.

You see financial planning financial management or money management, is an art. It’s not a science. If you talk to 100 different people, you’ll probably get 100 different answers. That puts us in a situation of, Geez, is this right or is this right? Or how about this other guy? And that could really create stress, anxiety, and more importantly, indecision.

In this example, putting $500,000 cash into a property could be a good decision. However, we do know that people have had extreme success, especially in real estate, by leveraging other people’s money. And one of the things we found about most people who use their own money or pay cash to make large purchases such as real estate, they do so in order to avoid paying interest. What they don’t see or what they’ll never see is the interest that that $500,000 could have earned them.

Now, these folks were in their mid-thirties, so it would be a fair assumption to say that they would be around for at least another 30 years taking them to age 65. So the real question that needs to be asked is how much would that $500,000 be worth in 30 years? Assuming 4.4% interest compounded for the next 30 years. It would have grown to over $1.8 million.

So the question I asked the client was this. What are the chances that in 30 years that property that you’re paying $500,000 for, what are the chances that that property can sell for $1.8 million? Their reply was not a chance in hell. And even if it could, we still have to consider that that property has taxes. There’s a cost to holding the property, even if you are paying cash.

We always tell folks every major purchase has its own universe of expenses. For example, if you buy a boat, you’re not just buying a boat. You’re buying a slip. You’re buying winter storage. You’re buying gas. It has its own universe of expenses. Same thing with a house or real estate.

Another idea of what you could have done with the $500,000 is to leverage it. Put down the down payment and have cash-flowing properties to pay the debt and have several properties to build a portfolio of assets rather than just one by deploying all of your money into one property.

And see, that’s the key to leverage, right? Leverage is using the least amount of money to control the largest amount of assets. This individual who was trying to pay cash for properties was using a lot of money for one property. Completely blowing away the concept of leverage and the power of leverage.

You see, with leverage, you’re able to multiply your wealth. And fortunately, in this case, it’s not hard to get a mortgage on a property. And in this case, I believe it does make sense for a mortgage versus a line of credit because the mortgage locks in the rate for 30 years. It locks in the payment. With the line of credit, you have to consider that there could be a variable interest rate on that loan. and if the bank wanted to, they could call that loan and all of that money would be due. Let alone the fact that you have to re-qualify every several years by providing financial statements and what your income status is.

So you want to get ahead financially, but conventional wisdom teaches us that debt is bad and therefore we give up control of our money. If you want to get ahead financially, you need to think outside of the box. How can you leverage the least amount of capital to control the most amount of assets?

If you’d like to learn exactly how we put our process to work schedule your free strategy session with us today. We’d love to chat.

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

Maximizing Your Money: The Efficiency of Purchasing Decisions

Do you realize that we finance every single purchase we make, whether we pay up interest by financing or give up interest by paying cash? There’s not really any middle ground. What is the best way to make purchases in the most efficient manner?

You see, most people don’t realize that each and every one of our dollars also has an opportunity cost. And by making purchases in an inefficient way, you’re giving up that opportunity cost.

Simply put, opportunity cost is what else you could have done with your money. Instead of spending it, if you saved it and were able to earn interest, that becomes your opportunity cost. So we don’t only lose the money that we spent on that item, we also lose the ability to earn interest from that money.

So let’s face it, we all want to be as efficient as possible with our money. But the reality is, that we are unknowingly and unnecessarily giving up control of our money and our hard-earned profits. That’s why we say it’s not what you buy, it’s how you pay for it that really matters.

Let’s say you have $10,000 in the bank, and coincidentally, you have a purchase that’s going to cost you $10,000. Well, if you have the cash, you may say, hey, I’m going to use this cash because when I don’t have to pay any interest. But that would be the wrong answer.

What we found is that most people who pay cash to make purchases do so in order to avoid paying interest. But what they don’t see is the interest they could have earned had they deployed that cash a little bit differently.

This is especially relevant in today’s economic environment because, let’s face it, bank CDs alone are paying a relatively high-interest rate these days. So even with that interest rate of a CD, you could be earning more on your money by not spending it.

Now, listen, we’re not saying don’t make the purchase. What we’re saying is there may be a more efficient way to make that purchase. So, number one, you can be in more control of your money, and number two, you could actually earn interest on your money rather than giving away interest that you could have earned.

Now, you may be wondering what is the optimal way to make this purchase for $10,000. Well, the answer is to leverage putting your money to work and also making the purchases. You see, by using other people’s money or ideally using your own money and leveraging against that, so it’s still able to earn a compound interest and you’re still able to make the purchase without giving it up, wouldn’t that be a good thing?

With this method, what happens is, yes, you pay interest. However, you continue to earn uninterrupted compounding of interest. And because of the difference between compounded interest growing on an increasing balance and amortized interest paid on a declining balance, you’ll actually pay less interest at a higher interest rate on the loan. Then you’ll earn on a lower interest rate compounding on your money. And the bottom line is this You get to keep more of your hard-earned money and what it could have earned for you.

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

Building Your Infinite Banking System: Start Where You Are!

Are you getting started with the infinite banking concept and you’ve heard that you should be building a system of policies?

When it comes to starting your banking system, the most important piece of advice that I give people is to start where you are. Start with whatever budget feels comfortable for your situation at the time.

Ideally, you want to build this banking system, and a system of banking has multiple branches or multiple policies that are accumulated over time. But it doesn’t happen overnight. The key is to start at a place that’s comfortable for you financially and more importantly, is something that you can utilize. Because the more you use it, the better it’s going to get.

As Nelson Nash said, any time that you can control the financing function in your life, you win by default because everybody else is being controlled by the system. If you’re in control of the system, you win by default.

I got my first policy as soon as I graduated from college, and naturally, I didn’t have a job yet, so my policy was only $200 a month. But that was starting where I was at the time. Over time, however, I’ve built more and more policies into my banking system and leveraged them along the way. As we build up that policy and that policy ages and matures by design, actuarially they become more and more efficient.

During the early years of the policy, let’s say I had access to 50% of the premiums that I was paying. However, over time, and as that policy has matured, I have access to more than $1 for every $1 of premium that I’m paying. You see, life situations change. I started earning an income and then as my income has grown, I’ve been able to purchase more policies because ideally, we want to be saving 20% of our income.

However, as our income changes, that’s a moving target. And so it’s important to build that system to accommodate and save efficiently along the way. Not only do I have access to more and more cash, but now I’m making the rest of my money more efficient because I can utilize that money and leverage the cash value I have to make the rest of my money more efficient.

For example, when I wanted to buy a car, instead of paying cash for the car, I borrowed against the life insurance. I was able to maintain control of my cash, and now I’m making a monthly payment back to the insurance company. And that’s important because now I have two hoses filling up this policy bucket.

I have the premiums growing and accumulating the cash value. Plus, I have the policy loan repayments, reducing the lien on my cash value so that I’m growing my cash value exponentially. Consequently, the next time I want to go buy a car or put a down payment on a house, I’ll have access to more cash value within my policy because I’m playing honest banker.

And here’s another analogy. If you’re doing business with a commercial bank, you are flying into a perpetual headwind, but when you control the financing function in your life, you’re creating a perpetual tailwind.

So naturally, we start off by insuring ourselves and maybe our spouses, but over time, it may make sense to build a banking system to include your extended family and your children so that you have multiple lives insured. And that creates a windfall into the family banking system and allows you to create generational wealth within your family.

If you’d like to get started in creating a tailwind instead of flying into a headwind, 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 webinar, The Four Steps to Financial Freedom.

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

Personalizing Policy Design for Infinite Banking with Whole Life Insurance

If you’re looking into the infinite banking concept using a whole life insurance policy, I’m sure you’ve heard of the different splits. Do I do a 90/10? Do I do an 80/20? Do I do a 40/60? What is the best design for me and how do I get the most out of my policies?

There is no one-size-fits-all when it comes to infinite banking. The policy design really comes down to how you actually plan on using the policy. From there, the advisor can help you design a policy that meets your goals and objectives as to how you want to use it.

When looking at the best policy design for a particular client. We certainly want to make sure we’re within their budget and that we can design the policy properly so it can perform now, as well as in the future for them.

Another thing we take into consideration when designing policies is the long-term effect of the modified endowment contract status test. You see, that test, The modified endowment contract status test, is an ongoing test. You may pass it in the first year, you may pass it in the 10th year, but you may fail that test in later years. And here’s the deal. Once a MEC, always a MEC. What that means is once that policy is a MEC, it will be a MEC forever.

It’s hard to determine when you’re first illustrating a policy if and when that policy is going to MEC because when you’re illustrating a policy, it’s only based on the current year’s dividends. But dividend scales change every year.

Let’s take a step backward. What exactly is a modified endowment contract and what effects does it have on the policy?

Well, the government wants to make sure that you’re not using life insurance as an investment because it’s not an investment. So we need to make sure that for the amount of cash you’re stuffing in that policy, there is enough death benefit to justify it. 

If your policy doesn’t pass the seven-pay test, it could become a MEC. What that means is it becomes taxable like an annuity, meaning any loans or distributions above the premiums paid into the policy will be taxable and taxable as income when that is accessed.

But keep this in mind, the effects of the MEC, the fact that distributions are taxable don’t come into effect until the cash value is greater than the premiums paid in, which typically can be anywhere from seven years to 13 years down the line.

So what that means is your policy could be an MEC on day one, But you won’t have to pay taxes on that distribution until the cash value is greater than the premiums paid.

So let’s go back. What is the best policy design?

Typically with an infinite banking concept design in a whole life insurance policy, we’re looking at a 40 base and a 60 paid-up additions rider, meaning 40% of the premium is going towards supporting the base policy, The death benefit, the regular whole life insurance contract, and 60% is going towards paid-up additions and building up that cash value in the early years of the contract. This is typically a safer policy design to prevent your policy from MEC-ing down the line.

Because every situation is different, it may make sense to do a higher amount of paid-up additions in the early years. For example, if you’re just getting started and you need access to a lot of that cash value in the early years and you don’t want to tie it up in the policy, it may make sense to put on more paid-up additions with the knowledge that may cause a MEC down the line. So, again, there’s no one size fits all.

We had mentioned that there’s a 40/60 and that might be the typical best way to do it, but it doesn’t mean that that’s the way you should do it.

If you’d like to talk about your situation and what policy design best suits your needs, hop right on our calendar by clicking the Schedule your Strategy Session button on our homepage. Also, if you’d like to learn exactly how we put this process to work for our clients, check out our webinar, The Four Steps of Financial Freedom.

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

Practice Financial Efficiency with Life Insurance Policy Loans

So you’ve heard of life insurance policy loans, but have you ever wondered exactly how the intricacies of policy loans work?

If you have a whole life insurance policy, there’s a contractual provision built into your contract that allows for policy loans. Policy loans are unique in that they’re unstructured, and you have guaranteed access via this loan provision. We usually recommend policy loans for our clients because they’re unstructured and they make the rest of their money more efficient.

You may be wondering how the heck could taking a policy loan make my other money more efficient. Well, there’s a couple of reasons.

First is the fact that it’s a collateralized loan. What that means is you’re not borrowing money from your policy, you’re borrowing money from the insurance company. They’re putting a lien against your policy, which means your money continues to earn uninterrupted compounding interest. It’s almost as if your money is in two places at once.

If you were going to pay cash for something and instead take a policy loan, now you still control the cash, the money in the policy is still working for you, earning uninterrupted compounding of interest and you’re paying a loan back to the insurance company. As that loan balance comes down, the amount of equity you can borrow against rises. You always have access to more and more money as long as you’re paying back the loan and the premium.

With the challenges we’re looking at going forward; high inflation paired with high interest rates, making the most of your money is important. That efficiency that you can achieve by borrowing against the cash value of your life insurance basically gives you multiple duty dollars.

The next benefit of using a life insurance policy loan is this unstructured repayment schedule, meaning you as the policy owner get to determine the amortization of that loan. You could set it up on a monthly basis for an amount that matches your budget or pays off the loan within a certain time period, or you could contribute lump sums towards that policy loan to knock it down when you have, let’s say, a bonus or a windfall of money, come in or you could pay just the interest. And it’s not required that you pay back the policy loan, although it is recommended.

Let’s say you set up the loan repayment for $400 again, that’s your decision. But three or four months into it, you realize you need more monthly spendable income. You could reduce that loan payment from 400, let’s say, to 300, or 200, or 100, or stop it altogether. Obviously, interest will accrue, and that interest is paid to the insurance company. However, it gives you flexibility within your current cash flow. That’s another key to making the rest of your money more efficient. 

The insurance company is actually able to make this unstructured loan because they’re the entity making the loan as well as guaranteeing the collateral. They’re on both sides of the equation, meaning they have nothing to lose in the game. If you don’t pay that policy loan back they have the cash value. If the insured dies with the policy loan outstanding, they simply reduce the death benefit dollar for dollar because that money was technically already paid out to that policy owner.

Here’s another note on making your money more efficient. What’s the least valuable asset that you control? Wouldn’t it be a death benefit on your life? You’re never going to spend that money. But think of it this way, by using the loan feature and borrowing against that cash value, it’s almost like you’re becoming the beneficiary of your own life insurance policy.

If you’d like to get started with using whole life insurance to leverage cash value and make your money more efficient, feel free to hop on our calendar using the ‘Schedule your Strategy Session’ button, or check out exactly how we put this process to work for our clients with our 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.