Lifestyle

Maximizing Retirement Benefits Using Life Insurance



I recently had a conversation with a longtime client who had some life insurance set up prior to his retirement. He’s now ready to retire and he called me to discuss his options for his pension. He has a defined benefit pension plan through his employer. And he wanted to know which was the best choice for him as far as leaving survivor benefits for his spouse.

Well, the good news was that because he had such a large amount of life insurance. That life insurance will be more than enough to replace his pension without having to take a reduction in his monthly pension. His life insurance is now paid up and consequently, he has a guaranteed death benefit. He doesn’t have to take a reduction in his monthly pension to leave his spouse a survivor benefit.

You see, a lot of times people view life insurance premiums as a cost, not an asset. However, when you have a specially designed whole life insurance policy designed for cash accumulation, it’s both an asset as well as a death benefit. You’re able to access cash value via the policy loan provision while you’re alive and take advantage of those living benefits as well as take advantage of the death benefit so that when you pass, the main beneficiary receives a death benefit.

You see, you’re able to purchase death benefit dollars, with pennies, the premiums paid. What this allows you to do is take more risk in other parts of your portfolio. your I.R.A., your 401k or your pension plan.

In the case of our client, he had a defined benefit pension for $5500 per month. However, his wife is a lot younger than him, almost 15 years. So the defined survivor benefit was going to cost him about 1,500 dollars per month, meaning that instead of getting $5500 per month, he was going to get $4,000 per month. And he said, Tim, I can’t afford to retire on $4,000 per month. I can retire on 5500. What are my options?

Well, it was really simple because he had a paid-up life insurance policy that he had funded for over the past 20 years. He was in great shape. He had a guaranteed death benefit that would have more than compensated his spouse if and when he dies. They’re able to maintain the $5500 per month and provide the survivor benefit through the death benefit of his life insurance policy that he would have had to have paid for had he taken that survivor benefit through his retirement system.

Not to mention, because this is a specially designed whole life insurance policy designed for cash accumulation. He also has access to the cash values via the loan provision while he’s alive. So if he wanted to control the financing function, let’s say, for vacation or their child’s college education or anything else while they’re still living, he has the ability to do so and access that cash value on a tax-favored basis.

And you may be wondering what impact would accessing those cash values have on the death benefit. It’s really simple. If you die while there’s a policy loan on the policy, it will be reduced dollar for dollar against the death benefit. In essence, the policy loan is just an advance on a portion of the death benefit.

This really underscores the flexibility and the options you have when you get to retirement. You get to use the money prior to retirement, but now you have options. And those options can help to make your retirement lifestyle so much better. When you access life insurance policy loans, they’re not recorded anywhere for the IRS to see, meaning they don’t increase your taxes.

So what taxes will they not increase?

There’s no increase in your federal income tax. There’s no increase in your state income tax. There’s no increase in your Social Security offset tax. There’s no increase in your Medicare premium, which, let’s face it, is a tax. As well as in most states, The death benefit passes federal income tax-free. And in most states, the death benefit passes outside of probate and outside of estate and inheritance taxes. So when you add up all the taxes that you’re not going to have to pay. That’s a huge way to make your money go a little bit further.

If you’re interested in making your cash flow and your money, now and in retirement, more efficient, schedule your free strategy session today. Or if you’d like to learn 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.  

The Benefits of Owning Multiple Life Insurance Policies

We’re often asked how to implement multiple policies using these specially designed life insurance policies designed for cash accumulation. When we talk about being in control of your cash, being in control of your money, or being in control of your life. One of the main tools we use is the infinite banking concept. 

The infinite banking concept allows you to take back the financing function in your life. Take it away from creditors, banks, and other outside entities and control that family banking function within your family or your business. The most important step of this process is to start where you are. However, as time goes on and situations change, it’s important to adapt your banking system to meet your current situation. 

Let’s say you had money in your left pocket. Now, in that left pocket, everybody can and will try to get in there. The government, banks, large corporations, credit companies, and Wall Street. Everybody wants access to that pocket.

Now what we teach people how to do is to take some money out of that left pocket and put it back in your right pocket. Now, it’s still in your pants. But here’s the key. The only ones who could get access to the right pocket are you, your family, and your business. Now, if you knew that there was a pocket designed that way, how much of your money would you want to put into that pocket? 

These life insurance policies, specially designed for cash accumulation, are a great place to warehouse your wealth. Now, after you build that warehouse for wealth and have inventory or cash, you’re able to access that money to finance the major capital purchases that you make. 

You see, we all make purchases. It’s part of being alive. The question becomes how are you going to finance those purchases? Are you going to pay in cash? Are you going to go to the bank? Are you going to use a credit card? Or are you going to use a life insurance policy loan that you have complete liquidity use and control over to make those major capital purchases?

And keep this in mind. If you pay cash, you’re no longer in control of your cash. If you finance, you are no longer in control of the process, the bank or the credit company is. But, when you borrow against the cash value of your life insurance policy, you’re in control. Your money is continuing to earn uninterrupted compounding interest. You are in control of how and when you pay back that loan. It’s sort of like having your cake and getting to eat it, too.

When it comes to implementing the infinite banking concept, we talk about becoming your own banker. And the policy is kind of like a bank branch. How many bank branches do you want to build within your system? 

You may not be able to handle all of the financing in your personal and business life with just one policy. That’s why we recommend multiple policies. You don’t have to buy them all at once. You buy them over time.

Another caveat is that you may want to start buying policies on other people, other people in your family, or your business. And the reason why you want to do this is to diversify. You see, everyone is going to die, but not everyone is going to die at the same time. And when you have a life insurance policy on a certain insured, a death benefit is paid at the time of their death.

What this allows you to do, if and when somebody dies first, you’re able to recapture the capitalization cost of that policy. Not only do you recapture the capitalization cost, but you also get an explosion of value, meaning a much larger death benefit comparable to the premiums you put into the policy.

In comparison to other types of insurance, you buy car insurance, but you don’t know if you’re going to have a claim. You buy homeowner’s insurance and you don’t know if you’re going to have a claim. You buy an umbrella policy and you don’t know if you’re going to have a claim.  Comparing that to life insurance, we know you’re going to have a claim. That’s why the system works.

Now, implementing this process in your life, your family, or your business is a great way to create generational wealth, wealth that will pass on and the legacy will be sure to pass on for many, many, many years to come.

If you’re ready to regain control of the finance function in your life and ensure generational wealth for generations to come. Be sure to schedule your free strategy session or check out 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. 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.

The Inverse Relationship Risk between Bonds and Interest Rates

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

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

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

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

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

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

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

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

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

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

Is Your Cash Flow Prepared for Student Loan Repayment

The most recent word on the street is that student loan repayments are going to begin again in October of 2023. What does that mean if you’ve been spending that money instead of saving it or paying toward your student loans all along? Well, basically, it could mean that you’re going to experience a cash flow pinch. Between inflation, high interest rates and now an extra debt payment it’s all about cash flow. Whoever controls it, controls your life. Let’s talk about how to create some cash flow relief and set yourself up for a better financial tomorrow.

They call inflation the stealth tax because it’s not written in the tax code, but it affects each and every single one of us. Some more than others. And recently, the costs of goods and services has been increasing at a faster pace than our income can keep up with.

According to the Federal Reserve, in the last quarter of 2022, consumer debt increased by $6.1 billion, which was one of the highest recorded quarterly increases. And that’s just in three months. This is proof that the cost of living is increasing faster than our income. If you don’t have the cash flow built in, it makes sense just to obligate your future income and put it on the credit card.

However, with student loans coming due and yet got another bill that we’re going to be responsible for, how are we going to fit this into our cash flow? This is why it’s more important than ever to make your money more efficient. You see, there’s only so much revenue coming in. There’s only so much income coming into your household or coming into your business. It doesn’t make sense to be using your money inefficiently and wasting the control that you had over that money. That’s why our process is more important today than it’s ever been, because we show you how to regain control of your money. 

What that looks like is looking at your cash flow for areas of wealth transfer. Areas you’re giving away control of your cash flow unknowingly, meaning you’re not aware of it and unnecessarily, meaning it can be corrected. And once you’re able to identify those wealth transfers, you could start saving in an area where you own and control, so ultimately, your goal could be to regain the finance function and control of that finance function in your life so that you’re less dependent on banks and credit companies for access to capital in the future.

You see conventional wisdom teaches us to save in areas where we don’t control that cash flow. Let’s take a look at a 401k, for example. Yes, we’re saving for retirement, which is admirable. However, when it comes to making these small milestones along the way, we don’t have access to that money and we certainly don’t have access to it without paying taxes, and a penalty in most cases.

You might be saying, “Hey, I’m using my money very efficiently.” Well, this is where the problem is. If you’re implementing conventional wisdom or traditional financial advice, in all probability, your money is inefficient. When we say inefficient, what we mean is your money is not accessible when you need it for whatever you need it. No questions asked. If your money is inefficient and inaccessible, that can create some huge financial problems.

I would argue that most financial struggles come from not having access to money when you really want or need it. Take, for example, when student loans are coming due. Imagine if you had access to money, instead of feeling pinched, you can have some cash flow relief built into your system. Flexibility is key when it comes to these issues.

If you’d like to learn exactly how we help our clients to become more in control of their cash flow and their assets Check our free web course that lays out exactly how we put this process to work, The Four Steps to Financial Freedom.

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

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.

Saving Money in the Proper Bucket

When accumulating assets for your future. There are three buckets where you could store your money, so hopefully it grows. Most people don’t realize they can choose whichever bucket they want their money in. What bucket are you saving in and does that match up to the bucket you want to be saving in?

So here’s a picture of a cake. We’re going to call it your money cake. It is literally all the money that you have accumulated for your retirement. And not only that, all of the money that you will accumulate throughout your lifetime.

I’m going to take the knife and make the first cut into your money cake. I’m going to hand you back the knife and you’re going to make the second cut. And that second cut is going to depict the amount of your money cake you want exposed to taxation.

I bet that’s a pretty small slice you just cut in your head. You want to keep as much of your assets for you, your business and your family as possible. That’s the name of the game here. Why are most of the choices you’re making exposing your money to unnecessary taxation?

Let’s start with the first bucket: always taxable. What does that even depict? Always taxable money is money that you’re putting into your pretax retirement savings. It’s things like IRAs, 401Ks, 403Bs. You see, these accounts are advertised as tax deferred, meaning you get to pay the taxes in the future. But in essence, it’s just postponing the tax. But not only that, also the tax calculation. And let me ask you this. Do you think taxes are going up or down in the future? 

We’re over $31 trillion in debt as we speak. Do you think our government is going to need more money or less money to provide the services that they’re currently providing, let alone paying the interest on that debt?

Another thing to consider with this always taxable bucket is you’re getting a tax deduction now on the contribution, the seed. But in the future, when you’re taking the money out, you’re being taxed on the accumulation value, the harvest.

That brings us to our second bucket: sometimes taxable. This is money that you have saved. But at the end of the year, the institution where you have the money parked is going to give you a 1099 or a capital gains statement. This would include mutual funds, brokerage accounts, anything that’s not in your retirement account and even savings accounts if you’re earning any interest on them. 

With this type of account, your taxes are paid each and every single year. However, most people don’t even realize it’s because the taxes are typically paid out of cash flow versus deducted from the account. So that account is able to accumulate. When you get a 1099 for interest or dividends or capital gains, that reduces the amount of tax refund you would get or increases the amount of taxes you have to pay. Doesn’t that reduce your lifestyle? Are you okay with that? So on paper, it looks like you’re earning this great high rate of return, but it does not account for taxes.

This brings us to our third bucket: taxed never. These are accounts like Roth IRAs or cash value life insurance where you can access the cash on a tax favored basis so you’re not unnecessarily paying taxes that you don’t want to or more importantly, you shouldn’t have to pay. 

Now, the way you get money into these accounts is with after tax dollars. After your money is taxed and put into these accounts, they’re able to accumulate on a tax favored basis. This allows you to accumulate more wealth with more tax benefits so that you’re able to keep the government’s piece of your cake as small as possible. You see, you pay them once you get them out of your hair and you’re able to grow and prosper in the long run. And not only that, keep it for you and your family and your business. And it’s a real simple philosophy.

We believe that our client should be in control of their money, not the government.

If you’d like to learn more about how to build your taxed never bucket, 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.

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.