Lifestyle

Tax Benefits of Cash Value Life Insurance

We often talk about the living benefits associated with cash value life insurance. Wouldn’t the best way to make sure your money goes as far as possible and as as efficient as possible be by protecting it from taxes?

Before we get started, let’s address the elephant in the room. Are you able to deduct premium payments toward your life insurance policy? The answer is a big fat no. You may be wondering why. Well, let’s think of it this way.

If you were to deduct this small premium payment over here while you’re still living it would cause this huge guaranteed pile of money, the death benefit to be taxable to your named beneficiary.

One of the hallmarks of life insurance is that you could take pennies in premium and turn them into dollars in death benefit. That is maximum leverage. By getting a tax deduction on the pennies, you get a taxable bill on the dollars. That’s not a good trade off. It simply doesn’t make sense.

So although you may be looking for strategies for living tax benefits while you’re alive, it doesn’t make sense to sacrifice the tax free death benefit in the long run. Here’s another key. There are so many tax advantages to owning cash value life insurance, and we’re going to go into those right now.

First of all, tax free access to policy loans via the policy loan provision. And keep in mind, all loan proceeds are, in general tax free. Using the loan provision allows you to tap into that cash value, to use it for whatever you want to use it for. Whether it be to send your kids to school, grow your business, do a home improvement. It’s a contractual guarantee, meaning you don’t have to justify what you’re using the money for because you’re guaranteed access to those policy loans via the contract between you and the life insurance company.

Another big benefit is that the cash value does not have to be reported on the FAFSA, which is the Free Application for Federal Student Aid. Meaning when it’s time for your children to go to college, the money that’s stored in the life insurance cash value isn’t going to be reported and isn’t going to be counted against your college tuition aid. There is not even a question on the FAFSA form to disclose cash value in your life insurance.

Another tax benefit is that the policy cash value is able to grow on a tax deferred basis as long as it’s in the life insurance contract. That’s why we talk about using policy loans so much, because not only do you have access on a tax free basis via the policy loans, but you also have tax deferred growth within the contract.

So you’re able to experience continuous compound interest on that cash value even after you access it through the policy loans, for example. What that means is when you access a loan on your life insurance policy, your money continues to grow as if you hadn’t borrowed.

A life insurance policy loan is a collateralized loan. You’re not borrowing from the policy, you’re borrowing against the cash value. And the cash value is the collateral. But here’s a caveat: that only happens if your policy is what’s known as non direct recognition, meaning that the insurance company will not penalize you by giving you a lower dividend if you have a policy loan.

The companies we typically deal with are non-direct recognition, meaning the policy is going to perform the same for our policyholders, whether or not they have a life insurance policy loan outstanding or not. But it will vary from company to company.

Another tax benefit is the fact that distributions from a life insurance policy in retirement will have no federal income tax, no state income tax, no Social Security offset tax, and will not be counted towards your contribution for your Medicare premium. That’s four taxes that you will not have to pay if you access your money through your policy in the proper way.

With a life insurance policy, all of the premiums that you pay into the contract are accessible on a tax free basis. It’s basically a return of premium. Anything that grows over that contributed amount is going to be fully taxable as income, but you could get around that by accessing it through policy loans after that basis is used up.

So recapturing your cost basis is actually called FIFO. First in, first out. The first dollars you take out are considered the first dollars you put in, which would be your cost basis. Which is a huge benefit.

What are the tax benefits of life insurance? The money goes in with after tax dollars, the money grows on a tax deferred basis. You can access the money through the loan provision on a tax favored basis. When you take distributions in retirement, the first dollars out are considered the first dollars you put in, which means you can recover the money you put into the policy on a tax free basis.

Then in retirement you can over your basis, you can take money out through the loan provision and again, avoid the taxes, state income tax, federal income tax, Social Security offset tax, no increase in your Medicare premium. Then when you pass away, the death benefits pass outside of probate, in most states, and in most states pass outside of state inheritance or estate taxes.

Finally, when you die, the death benefit goes to your name beneficiary on a federal income tax free basis. And here’s the point It’s not about rate of return, although the rate of return is really strong. It’s about maximizing what the tax code allows you to take advantage of.

So let’s summarize where we are so far. You put money in a life insurance policy with after tax dollars, the money grew on a tax deferred basis. You are able to access it through the loan provision on a tax favored basis. You put the money back in, you took it back out again however often you want.

Now you go to retirement time and guess what? No state income tax, no federal income tax, no Social Security offset tax, no increase in Medicare premium. So we got you through into retirement with tax advantages and now you pass away. The death benefit passes to your name beneficiary on a tax free basis. And in most states, the death benefit is not counted towards probate and it will pass outside state inheritance or state estate taxes.

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

Navigating Polarized Financial Opinions and Achieving Your Goals

If you haven’t noticed, the world we live in is becoming more and more polarized. There are so many conflicting opinions out there. Are we about to go into a recession or not? And what about interest rates? Are they going to keep going up or are they going to decrease again? 

Will there be continued volatility in the market or will stability return to the market? Not to mention the ultimate question, are taxes going up or down? How do we put ourselves in control of what we can control and start saving for the future, for a sure thing, regardless of what’s happening.

Because of the polarization, because of the uncertainty that comes with this polarization, one thing is certain. We still have goals. We still have milestones. And the longer we wait to address them, the more time we lose. And the fact of the matter is this the only thing we cannot afford to lose is time.

So the question remains, what moves should you be making right now to put yourself in a better financial position tomorrow? What are you going to look back and say, “Hey, I’m glad I made that financial decision. I’m glad I didn’t stay paralyzed and I’m glad I took that next step”.

The lens we look through is control. How do you remain in as much control as you can? Control of your assets, control of your cash flow, control of when you meet your goals. And when you’re in control, you’re better positioned to take advantage of anything that the economy, the government, and the world throws at you.

Again, putting yourself in a position where you could actually take advantage of all the bad news that’s out there. You could actually be in a position where you can look at that as an opportunity rather than being victimized by whatever happens outside.

You see, we believe there’s more opportunities in avoiding the losses than picking the winners. And not only that, but have you ever heard this, buy low and sell high? What better time to have full liquidity use and control of an asset than when the world is in economic turmoil? And by being prepared, you put yourself in a position where not only can you take advantage of opportunities, but you can protect yourself from whatever happens out there.

Here’s a question we ask all of our clients. Does having money that safe, liquid, and accessible when you want, no questions asked, does that take away any options in the future?

However, you have to keep in mind that the world around us is trying to gain more and more control of our cash flow. Whether it be paying off your mortgage as soon as possible, paying cash for your cars, or even saving in our retirement plan.

All of these things take your cash flow on a monthly basis and to put it out of our control. We’re transferring money from our control, our checkbook, every single month to outside creditors where we no longer have access to that money, especially without permission or a penalty.

So the answer, in our eyes, is very simple. When you view things through the lens of you being in control of your money, that makes your decisions so much easier. Because when you look and you analyze at the outcomes of each of these strategies and you see that you’re not in control of your money, don’t do it. Search, and find, areas or strategies that will continue to keep you in control of your money so that you can pivot in any direction that’s advantageous to you.

A perfect example of how someone isn’t looking at things through the lens of control is when they get hung up on interest rates. For example, when you go to the bank for a mortgage, what’s the first thing they offer? Hey, if you get a 15 year mortgage, you’ll have a lower interest rate than if you got this 30 year mortgage. But, what happens if you take that 15 year mortgage?

Well, you’re giving up a larger chunk of your monthly cash flow. And what’s the ripple effect of that? Well, if you’re putting more money toward your mortgage, you’re locking more money up in your home equity, but you’re also not able to save as much to reach your other financial goals.

You see, the money in your home equity isn’t necessary liquid, and it’s especially not liquid if you lose your job or become disabled, there’s no bank that’s going to give you a mortgage or access to that money If you don’t have a job.

So when you step back from that decision to take a 15 year mortgage because the interest rate is lower versus a 30 year mortgage, now you’re chewing up more of your cash flow. And the ripple effect is now you can’t save as much money, but more importantly, now you have less accessible money. So, if an emergency comes around or an opportunity comes around, you can’t solve the problem created by the emergency or take advantage of the opportunity that came to you. So the key is having accessible money that positions you to take advantage of all of these situations.

Let’s face it, life always happens. And when life throws a curveball at you, don’t you want to be able to hit that ball out of the park instead of being hit in the face? I for one, I have to tell you, I hate getting hit in the face. It’s not pretty. 

If you’re ready to hit that curve ball out of the park, be sure to visit our website at Tier1Capital.com. Check out our free webinar for exactly how we put this process to work for our clients.

As we always say, it’s not how much money you make. It’s how much money you keep that really matters.

Leveraging the Cash Value of Your Life Insurance Policy

So you’re a business owner, and you have a whole life insurance policy, and you want to leverage the life insurance cash value to make an investment in your business. But what happens when you want to infuse some of that wealth into a business expansion, into operations, or into a business opportunity?

Let’s assume that I own an insurance policy, and I want to take a loan for my business. The first step will be for me to request a loan from the insurance company. The insurance company will send me a check or direct deposit into my bank account, and then I could make a separate loan to my business.

With that, we’ll have a promissory note drafted up between the business and myself laying out the terms of the agreement. It’ll include the payment amount, the interest rates, and the amortization of the loan. Additionally, there’ll be an amortization schedule that’ll lay out the principal and interest payments of this loan between me and my business.

You see, it’s important to make sure that you’re following the amortization schedule because the business is going to want to deduct the interest that it pays to the loan provider (myself), for the loan that I made to my business. So the business wants to get that deduction.

But now, I have to claim that same amount of interest as interest income, and now I have to file that on my tax return as interest income. Any accountant can help with that because they’ll have the amortization schedule and hypothetically, they’ll be handling both my business and my personal tax returns.

So continuing with the logistics, every month, my business will pay me the set amount from our promissory note, and I will repay my policy loan.

You see a very key step is making sure that I make the payment back to my policy. Why? Well, number one, I wants to reduce the amount of interest I pay to the insurance company. But number two, I wants to make sure that I have money in the policy for the next opportunity, or the next emergency, or the next expansion of my business.

You see, there’s a second layer here. With the life insurance policy I’m paying premiums, and after I took the loan, I’m also infusing cash back into the policy via these loan repayments. So it’s like I have two hoses filling up the same bucket. Because I’m filling up this bucket from two hoses, the premium and the loan repayment, it’s going to get more and more efficient each and every single year. I’ll have access to more and more cash with each passing year, and that will help to take advantage of bigger opportunities down the road.

You see, the goal is to control the entire financing function in my life so I could control the financing for myself, things that I want as well as for my business. And when we talk about making sure that you’re in control or regaining control of your cash, we’re talking about your cash. We’re talking about your cash flow. And we’re talking about your future.

If you understand this concept, it’ll be easy for you to create, cultivate and keep your wealth.

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

Experience the Benefits of Compound Interest

Do you realize we finance every single purchase we make? We either go to a bank or finance company and pay up interest, or we pay cash and we give up interest. But if you’re paying cash, I’m sure your intention isn’t to give up control of your money,  or isn’t to lose opportunity cost.

Today, we’re going to talk about how you could still pay cash for things without giving up opportunity costs and without giving up control of your dollar.

You may be familiar with the two main ways of financing any purchase. The debtor, who digs a hole and fills it up and just fights to get their head above the horizon, that zero line. Or the saver, who is kind of the debtor in reverse. They save up money as a matter of course, but once they have enough to make their major capital purchase, they drain the tank and they give up the opportunity cost of the money that could have been earned on their assets.

In both situations, the debtor and the saver spend a lot of their time at the zero line. They don’t get to experience any of the benefits of compound interest. You see, when you’re in debt, your cash flow is obligated to filling in that hole, to getting back up to that zero line. But when you pay cash, you’re still married to that zero line, you’re still saving as a matter of course, but you’re not really getting ahead because once that purchases made, you’ve traded your cash, that you owned and controlled, for the asset for the purchase, whether it’s a vacation, whether it’s a home remodel, it doesn’t matter. All of that cash is gone because you made a purchase.

But that can’t be what the wealthy are doing, right?

What wealthy people do is really simple. They create, cultivate, and keep their money. They keep in control of their wealth as long as possible. Now we have this question, if I want to make a purchase, we don’t want to finance and we don’t want to pay cash, how can I make the purchase?

The answer is simple, leverage. Leveraging other people’s money without draining your savings. Making your money more efficient by accessing other people’s money. We use this by leveraging the infinite banking concept with a specially designed whole life insurance policy designed for cash accumulation.

With this product, we’re able to leverage against our cash value that has accumulated within the policy, without giving up the compound interest. In essence, we’re able to take back the finance function within our own lives.

The key thing here is that we still get to make the purchase. We can make purchases for our own life, whether it’s sending our kids to college or paying for their tuition or paying for a wedding or a down payment on the house. The options are literally limitless.

What this extra step adds is a way to finance these purchases using your own money, without giving up control of the money, without being penalized by taxes, and without being dependent on banks and credit companies. 

Not to mention without having to drain down the tank and giving up opportunity costs on our money or without having to give up control of the process. We give our clients a choice. You can either be controlled by the process or be in control of the process. Which would you rather?

I would argue that most financial frustrations come from not having access to money when we really need something. When you have access to cash, it seems like opportunities naturally find you. So whether it’s a business endeavor or an investment opportunity, the options are limitless as to why you should use this cash for. And when you’re able to take advantage of an external opportunity, you’re able to earn an external rate of return on your money, as well as the internal rate of return on your money. 

That’s the continuous, uninterrupted compounding of interest.

So how does this play out? Well, you start a policy, you build up a pool of cash that you’re able to access and repay because you own and control that policy. And it’s a matter of course, you’re a saver. You’re always saving money. You’re always being an honest banker and paying yourself back. Then you’re able to leverage that money for retirement on a taxpayer basis and the leftovers get passed on to your family on a tax favored basis. 

The tax benefits of life insurance are numerous.

Number one, the cash value grows on a tax deferred basis.

Number two, you’re able to access the cash value on a tax free basis through the loan provision.

Number three, when you die, the life insurance death benefits pass outside of federal income taxes to your name beneficiary. And also, in most states, the death benefit is outside of state income tax and usually state inheritance tax.

So let’s summarize. Number one, you get to make the purchase. Number two, your money earns uninterrupted compounding of interest. Number three, you’re in control of the process. Number four, numerous tax benefits.

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. It’s how much money you keep that really matters.

Saving and Eliminating Debt by Leveraging Your Current Cash Flow

I would argue that the number one source of financial stress comes from not having access to money when you really need it. The perfect example of this comes when you end up in too much debt than you could afford. It ties up your monthly cashflow and leaves you in a position where you just are trying to get out. But often people neglect to save and secure their own financial future before getting out of debt.

Total household debt is up to $16.9 trillion for Q4 of 2022, and of that, nearly $1 trillion is credit card debt. Credit card debt had grown by 6.6% in Q4 over Q3. That’s the largest quarterly increase ever recorded.

It’s clear that Americans are being squeezed from every angle. Inflation is up. Interest rates are up and savings is down. It’s getting harder and harder to make ends meet. So it’s no wonder that people are charging on their credit cards. But when you charge on your credit card, what are you actually doing? You’re obligating your future income to pay off that credit card debt and with the interest rate so high, some credit cards are 25 to 30% APR these days. It could be a very heavy interest expense, but it’s what people need to do to get by. However, once you’re in credit card debt and you’re trying to get out, the natural reaction is to put all of your monthly cashflow, all of your extra money towards that debt because it’s draining you.

What people neglect to take into account is that even if you got all that credit card debt paid off, you’re still just at the zero line. You’re no more financially secure than you were when you were buried in debt.

You went from a position of having very little cash flow and no access to money, and now you’re out of debt, but you’re still in a very precarious situation financially.

This is why we think it’s important to both pay off your credit card debt, but also save for your future, to accumulate a pile of money that you own and have full liquidity use and control over to protect you and your family.

58% of Americans have less than $5,000 in savings and 42% of them have less than $1,000 in savings. Most families out there have a very difficult time absorbing a $400 medical bill. And let’s face it, how easy is it to rack up $400 in medical bills today?

Parkinson’s law says that expenses rise to meet income. So if you’re not diligent on saving your raises, guess what’s going to happen? Your expenses will rise to meet your income.

Another way to look at this is with the student loan debt. A lot of people stopped paying their student loans during the pandemic because of the forbearance. Didn’t they in essence, give themselves the raise? What’s going to happen when those payments resume and their cash flow is going to be pinched for the amount that they’re going to have to repay back to the student loans?

You know, we talk about this all the time, but really, there’s no such thing as a free lunch. Our capital also has a cost, and sometimes we don’t recognize that. In essence, what’s happening is we’re taking care of our current lifestyle wants and completely ignoring our future lifestyle needs.

One of the ways we help our clients is by using specially designed whole life insurance policies designed for cash accumulation so that they’re able to build a pool of cash that they’re able to leverage to pay off their credit card debt and achieve their other financial goals without interrupting the compound interest curve.

If you’re interested in learning more about how to manage your debt and your savings, check out our website at Tier1Capital.com to schedule your free strategy session today. Or if you’d like to learn more about how exactly we will put this process to work for our clients, check out our Four Steps to Financial Freedom Webinar right on our homepage.

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

Are You Saving Enough to Reach Your Retirement Goal?

It’s pretty safe to say we all have one goal in common, and that is to eventually retire. Today, it’s harder than ever to save for your retirement. Americans are being squeezed from so many different directions. Income is down, inflation is up, the savings rate is down. How are we going to be able to save as well as live and survive to get to retirement?

One day you’re going to want to turn your income off, stop working and start taking distributions from your accumulated funds. We call this Position A. Having enough money saved up and accumulated to support your current standard of living, adjusted for inflation, so that you don’t run out of money before you run out of life.

So how do you know if you’re on track to meet this goal? How do you know if what you’re saving in your company 401k plan, 403b plan, IRA, or other investments is actually going to get you to your Position A.

Well, there are four questions that everyone needs answered in order to know whether or not you’re on track. First and foremost, what rate of return do you need on your savings and investments to get you to Position A? Second, how long do you need to work in order for you to get to Position A? Third, how much more do you need to save in order to get to Position A? And number four, how much will you have to reduce your current lifestyle in retirement in order to not outlive your money?

Knowing the answers to these four questions is vital to make sure you’re on track to meet your Position A. Another thing to note about these four questions is that the answers are going to be noted in future dollars, meaning adjusted for inflation. Currently, inflation’s between 6 and 7%, so the government says, and we want to make sure that you have enough so that your dollars could buy the same amount in the future as they’re buying today.

The point is, this is not a simple calculation.

The fact of the matter is we’re trying to hit a moving target and in essence, we’re trying to plan for certainty during uncertain times. However, as with any goal, in order to know how to get there, you need to first know where you’re going, and then you can make a plan on how to achieve that goal of getting to your Position A and retiring so that you’re not going to run out of money before you run out of life.

 

If you’d like to know the answers to the four questions as it relates to your specific financial position, check out our website at Tier1Capital.com and hop on our calendar for a free strategy session. We’ll be able to answer them in about 15 minutes.

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

Escaping from Credit Card Debt

Credit cards could be a great financial tool if used properly. They give you instant access to capital and if you pay them off before the credit card due date, you don’t have to pay any interest. Unfortunately, some people get into a situation where they’re carrying a small or large amount of credit card debt that could really weigh down their ability to succeed financially.

Additionally, participating in a tax qualified retirement plan like a 401k or an IRA is a good idea as well. However, what happens when you combine having credit card debt with your participation in a tax qualified retirement plan?

Sometimes people come to us and say, Where do I get started? Do I pay off my credit card debt? Or my student loans? Or do I start saving first? And to that question, we answer, “What if you could do both?”

Credit card interest rates could go anywhere from 18 to 30% these days with an interest that high carrying any credit card balance could become stifling because of the amount of interest being charged each and every single month.

When you combine high interest rate credit card balances with your participation in a retirement plan such as a 401k, that creates a double whammy where you’re saving money in an area that you can’t access. And along the way, you’re paying a hefty interest rate just to get out of debt.

A lot of times people who are carrying a credit card balance and contributing to their retirement plan can feel stuck and suffocated financially because they have no access to cash flow. Hundreds of dollars every month are going towards credit card interest, and hundreds of dollars a month are going towards an area where they don’t have access to that money.

So where does that leave them as far as their short term financial goals? The strategy of where you’re saving your money and the strategy of how you’re using your money need to be coordinated to give you the best results.

Typically, if someone comes into our office and says, “Hey, I’m carrying this heavy credit card balance and I’m contributing to my retirement plan every paycheck”, the advice we might give them is to pause on the retirement until we could get a hold and a handle on this credit card debt, because, like I said, that interest rate can be stifling on your ability to save for your future.

And a lot of times when we see people in that situation, we’ll ask them, how long have they been doing this? And they’ll look and say, “Well, we’ve been doing this for a long time. It seems like forever.”

Well, that situation keeps perpetuating itself. Because what happens is sometimes you start getting that credit card balance paid down, but then you run into a financial or a medical emergency, and that means you’ve got to put more money on a credit card because you don’t have access to any of your money. Why? Because all of your savings is in your retirement account. Again, try to coordinate, where you’re saving your money and how you’re using your money, can give you tremendous results on the back end.

Every situation is different. A heavy credit card balance for some people may be a few thousand dollars. In some extreme cases we’ve seen people with over $100,000 of consumer debt that they’re carrying each and every single month.

But with great debt and great cash flow comes a great opportunity. With some simple shifts, you may be able to get out from underneath that credit card debt by building your own pool of cash that you have access to to start chipping away at the debts one by one.

The ultimate goal is to put you in control of all of that cash flow that you were using to get out of debt or to pay on your credit card. Imagine the impact it would have if you had control of every single dollar that you’re currently putting toward your credit card debt.

Imagine what goals you’d be able to accomplish, like putting a down payment on the house, starting a new business, paying for your car, or simply retiring one day.

This is a simple concept. If you step back, literally what we’re doing is converting liabilities into assets. Any time you can convert a liability into an asset, you win.

The mechanism of this strategy is redirecting excess debt payments from the credit card company and putting it in a specially designed whole life insurance policy designed for cash accumulation so that you could build a pool of cash that you have access to that you own and control.

As you build up that pool of cash, you’re able to borrow against the cash value within the policy and start knocking away at the credit card debt so that you slowly begin to earn more and more control of your cash flow. As you pay off those credit card debt, you redirect those payments to your policy loan so that you’re building your policy with your premiums as well as the loan repayments, and you’re able to pay off debts quicker and quicker down the line.

There are two huge advantages to this. Usually you’re paying a much lower interest rate to the insurance company. Currently, those rates are about five, five and a half, maybe 6% on the high side versus paying 18 to 25 or 30% on a credit card. So clearly you win there.

A second benefit is that as you’re paying back the policy loan, you get to use that money again to pay off another credit card and therefore have more cash flow redirected back to the policy that you are in control. And slowly but surely, you’ll have all of your debt payments coming into your policy and you own and control the policy. Therefore, again, converting liabilities into assets.

The most important step is the first one. If you’d like to get started and learn more about how we could put this process to work for your specific situation. Visit our website at Tier1Capital.com. Feel free to schedule your free strategy session today. We’d love to talk to you.

Or if you’d like to learn more about 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. It’s how much money you keep that really matters.

Redirect Your Cash Flow Back to You

A lot of people don’t have the time or the motivation to do a deep dive into their finances. And other times people say to us, “Hey guys, I’m not giving up control of my money in any of these five areas of wealth transfer. How do I get started with saving for my short term, intermediate and ultimately retirement savings goals with this concept?”

We talk about the five areas of wealth transfer where we look to find where people are giving up control of their money unknowingly and unnecessarily. Those five areas are: taxes, how you’re funding your real estate, how you’re funding your retirement, how you’re paying for your children’s college education, and then how you make major capital purchases.

But what if you’re not giving away control of your money in any of those five areas of wealth transfer? Does that mean that your cash flow is already as efficient as possible?

But that may not necessarily be the case.

The fact of the matter is, most of your income is flowing through your system, through your checking account, and going to pay for lifestyle or to be reinvested or to help you grow your business.

 

In many situations, we’ll review how people are using their money and we’ll look at those five areas of wealth transfer and we’ll be able to identify areas that they’re giving up control of their money unknowingly and unnecessarily, and show them how that if they just stop doing that, their circle of wealth will grow. And, if they redirect that same cash flow back to an entity that they own and control, they’ll be able to build a pool of cash that they could access, no questions asked, without having to get permission, in order to expand their business or their personal lifestyle.

In that type of situation, it’s easy for us to identify the leaky holes in your personal economic model or in your bucket, if you will. We’re able to plug those holes and fill up the bucket with money. But if you don’t have any holes in your bucket and instead your bucket doesn’t have a bottom, it’s important to build that foundation and start with what you can afford to put away at this point and then slowly build up that bucket. Keeping that money as efficient as possible so that you’re able to achieve your short term, intermediate and long term financial goals no matter what they may be.

What we have found is that everybody has financial milestones or goals that they need or want to accomplish, and in that case, starting where you are puts you in a better position to make your money more efficient prospectively as you’re going forward, because the more efficient your money could be, the better chance you have of reaching those milestones and more, more importantly, achieving your goals.

A financial goal could be something like paying off your credit cards, your student loans, saving for a down payment on a house, financing a new car, or eventually one day retiring. No matter what your financial goal is, it’s important to start somewhere so that you’re able to build before it’s too late.

You see, with the compound interest curve, there are only two factors to consider, time and consistently putting away money. The sooner you start that compound interest curve, the better your results are going to ultimately be. This goes back to a point earlier, when we say pay yourself first. Again, the whole concept is to make your money more efficient, paying yourself first, make sure that you’re saving or you’re going to be on track to meet those milestones.

The process we use uses a specially designed whole life insurance policies designed for cash accumulation to help our clients achieve their financial goals. With this product, we’re able to design a policy to meet the cash flow needs of each individual client, and every situation is different.

If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation to help meet your financial goals, be sure to visit our website at Tier1Capital.com to get started today. Feel free to schedule your free strategy session or if you’d like to learn more about exactly how our process works and how to put it to work for your family and your situation, check out our free webinar, 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.

What is a Limited Pay Policy?

As a young person, the thought of paying life insurance premiums until age 100 or 121 can seem a bit daunting. I mean, who makes commitments for that long, really? But here’s the secret. There are limited pay policies, policies that are paid for X amount of years. These policies can be a great saving solution for young people.

A limited pay policy could make sense in a lot of situations, but it especially makes sense when you’re dealing with these specially designed whole life insurance policies designed for cash accumulation.

By its nature, a specially designed policy for cash accumulation puts extra money into the policy, and a limited pay policy has extra premium because you’re shrinking down the amount of years in which you’re paying the premium from age 100, let’s say, to age 65 or for a 20 year period or a ten year period.

The lower the amount of years of funding, the higher the premium. But again, if you’re designing a policy for cash accumulation, a limited pay policy makes sense because it puts you in a position where, let’s say a life paid up at age 65, there are no more premiums due after age 65. Now you’re collecting checks instead of paying premiums.

But let’s take a step back. We’re saying a higher premium. And what we mean by that specifically is, it’s a higher premium for the set amount of death benefit, which isn’t necessarily a problem when you’re designing these policies for cash accumulation. You’re focusing on the cash accumulation versus the death benefit. And many people, when they’re young, they don’t have a great need for death benefit. So it’s really not a deal breaker.

But the key is you’ll have the death benefit at your life expectancy when you’ll need the death benefit the most. And consequently, if you have a limited pay policy, again, let’s say a life paid up at age 65, by the time you’re 85, there will have been 20 years where you didn’t have to pay any premiums. But you had a completely paid up death benefit that’s actually growing every year because there’s no cost of insurance dragging the return or the growth of the policy.

In my case, I started limited pay policies years ago and it was a simple way to get started with saving. I put away a 500 or $1,000 a year into these policies, and in ten or 20 years they’re going to be paid up completely and the cash value and the death benefit are going to continue to grow and accumulate interest and dividends throughout my entire life, even after the premiums aren’t being paid anymore.

But keep in mind, there is a trade off with a limited pay policy. And what the trade off is, is that’s less money that you could stuff into the policy for any given death benefit. And what that means is your cash value will be slightly lower in the earlier years, but then you have to weigh the cost of having less cash value in the early years versus the benefit of having no premiums in the later years.

But let’s take another step backwards and think about compounding interest. Compound interest curves require two factors time and money. We all know we could never get time back, and it’s important to consistently put money in to these policies to accumulate the best compound interest curve possible. But with a limited pay policy, you’re limited on how much money you’re able to put in.

So again, in my situation, what I do is I have a term policy that guarantees convertibility of that death benefit, and I could create more whole life policies throughout my life as my budget allows. So as I pay up policies I have the cash flow to now convert a piece of my term policy into a new whole life policy and start the cycle all over again.

But the key is I’ll be building capital that I could access everywhere along the way to take care of the things of life, whether it’s buying a car, whether it’s going on vacation or moving across the country. Not to mention for business opportunities.

 

These policies are great for entrepreneurial type people. You have full liquidity use and control of that money to take advantage of business opportunities that come about. So you could earn an internal rate of return within the policy and also an external rate of return by starting your own business and putting that capital to work for you without interrupting the compound interest curve, which is key.

Nelson Nash, the author of the bestselling book Becoming Your Own Banker, put it so eloquently, “When you have access to money, opportunities will find you.”

If you’re considering a specially designed whole life insurance policy designed for cash accumulation, whether the traditional design or a limited pay policy to meet your needs, visit our website at Tier1Capital.com to get started with your free strategy session today.

You can hop right on our calendar, or if you’d like to learn more about how we put this process to work for our clients, check out our free webinar, The Four Steps to Financial Freedom. It’s right on our homepage.

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

Increasing your Business’ Cash Flow Efficiency

As a young business owner, it could be simple to fall into the trap of reinvesting all of your profits back into your business to help that business grow and expand and hopefully grow your income as you go. But today, we’re going to talk about how do we save outside of the business on a systematic basis to achieve your other short term and long term financial goals?

When you first start off as a business owner, there’s not a lot of cash flow that you could take out of the business. You’re just putting all that money into the business to help grow and expand and set a footprint in your space. But once that business is established, there’s some extra cash flow there that may make sense not to put directly back into your business, because, let’s face it, life exists outside of your business. You may have a family, children that you want to send to college, a wedding that you want to pay for, or a home that you need a down payment for. How do you grow your business and still achieve these financial goals?

It’s often been said that the problem with a closely held business is that it’s closely held. And what does that mean? Basically, you make all the decisions, and generally most business owners will make the decision to reinvest all of their earnings back into the business. Not necessarily a bad thing, but here’s what happens. That money is stuck in the business. And if you have other goals outside of the business that you need or want to accomplish, it puts you in a position where you have to choose between your business or your family. And no business owner should have to make that choice.

So the question is how do you make your cash and your cash flow more efficient so your money could be in two places at once. And the way we help our clients to achieve this is by using a specially designed whole life insurance policy designed for cash accumulation. So you have full liquidity use and control of your money to do things like expand your business. But also send your children to college or finance a new car. There is no “or” in this situation, it’s an “and.” How do you do this and that? Not to mention, you could use this tool as a long term solution to achieve your goal of eventually retiring.

So by making your money more efficient, it’s literally like your money’s in two places at once, because quite frankly, it is. And that presents a situation or an opportunity where you have $1 performing two, three or four tasks. It’s multi duty dollars and it really works for a small business owner.

 

What do we mean by multi duty dollars? Well, you’re paying the premium for the life insurance, but you also have access to that money to expand your business or achieve your other goals. But that policy also produces a death benefit for your business or your family. And there’s other riders that could be included.

Those other riders include a disability waiver of premium rider in case you get sick or injured and can’t pay the premium or a terminal illness or chronic illness benefit rider which allows you to tap into the death benefit on a tax free basis to pay for a long term care event or a chronic illness.

Not to mention the fact that if you use the money to grow your business and put it back through the loan feature, when you go to retire, you can use the dividends from the policy to supplement your retirement income and that’ll save you on four taxes. Federal income tax, state income tax, Social Security offset tax as well as not allowing an increase in your Medicare premium. And there’s actually a fifth tax when you die, the death benefit goes to your family in the state of Pennsylvania, outside of state inheritance tax.

Let’s take a look at the loan feature of these policies. Every whole life insurance policy includes this loan feature, but these specially designed policies allow your money to be in two places at once. What do we mean by that?

Well, a policy loan is a collateralized loan against the cash value in your policy. So the money never leaves your policy, but you still have access to it from a separate policy loan given by the insurance company. So you’re able to access cash and still grow uninterrupted compounding of interest on your money.

One of the best features of these policies is that it’s a systematic way to save outside of your business, meaning as you pay your premium and build up your cash value, you have more and more access to cash and your policy becomes more and more efficient as it matures.

So before you know it, you’ll have a pile of cash that you have access to for whatever you want, whether it’s to expand your business or achieve your other financial goals, and you’re able to access it without interrupting the compounding of interest. So you could earn interest within your policy and continue to grow that cash and still make an external rate of return if, for example, you use it to grow and expand your business.

Think of it this way. You have two choices. Choice number one is to reinvest the profits in the business, and the money is illiquid, or choice two is reinvest the money into the whole life policy. The money’s liquid and you can then borrow against that cash to reinvest in your business. So you get to grow your business. But now you have some liquidity.

We look at financial situations through the lens of control. Is this decision going to put you in more control or less control of your cash flow?

If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation. Be sure to visit our website at Tier1Capital.com to get started today. Feel free to schedule your free strategy session. We’d be happy to help design a policy for you and give you a free cash flow analysis to see where we can help you make your money more efficient.

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