Personal Finance

Unlocking Your Financial Ferrari: How an Old Life Insurance Policy Rescued a Family from Debt

Do you have a Ferrari in your garage, and you’ve never driven it? Someone recently reached out and they had a 12-year-old life insurance policy sitting doing nothing. This means they had cash value in the policy that’s accumulated over the last 12 years, and they’ve never put that money and deployed it in their financial system before. So we were able to create a plan for them to get out of debt.

You’ll hear us talk often about specially designed whole life insurance policies designed for cash accumulation. However, all life insurance policies have a cash value aspect built into the cake. You see, when you have a whole life insurance policy the insurance company is making two promises. The first is to pay the death benefit when the insured dies, as long as that policy is in force. The second is to have a cash value equal to the death benefit at the age of maturity, which is typically age 100 or 121. In order to keep that second promise, the insurance company is required to stash away more and more cash over time.

Now, the policy owners have something called a loan provision built into their contract, which guarantees them access to that cash value via policy loans. You see, these people bought their original policies for death benefit purposes, but they also had the cash accumulation.

Now, the policies were 12 years old. They were very well seasoned, meaning that at this stage of the game, the cash value increase was over $2 for every dollar they paid in premium. That was a really good moneymaking machine, so to speak. And I explained to them, it’s sort of like you have a Ferrari in your garage and you’ve never taken it out on the street. We’re going to give you the keys to that Ferrari so you can get it working for you, not the insurance company.

You see that policy has that cash value that you’re able to access through the loan provision on a guaranteed basis. You’re able to repay it within your cash flow because it’s an unstructured loan from the insurance company. And what this family is able to do is borrow against their cash value and pay off this high-interest credit card.

Now, the key here is that as they repay that policy loan, it’s going to reduce the lien against their cash value and they’ll have access to more and more cash value over time. With that, they’ll be able to pay off all of their credit card debt using this process. The beautiful part about it is that they’re going to get out of debt quicker than if they put all of their payments and snowball them on one credit card, then the next, then the next.

That’s the amazing thing about this. Because now they’re filling up that policy equity with two hoses, the premium hose, and the loan repayment hose. Before they were only filling it with the premium hose and they weren’t even tapping into it.

You see, there’s a big difference between paying off debt with a regular snowball and just putting all your cash flow towards getting out of debt as soon as possible versus using a policy loan. Because if you just snowball the traditional way, you spend all of your money and send it all off to the credit card companies, and at the end of the day, what do you have to show for it? Nothing. A zero debt balance.

However, when you use the policy loan to get out of debt, at the end of the day, you have a policy full of cash value that you’re able to access and leverage again, so you are less dependent on those credit companies in the future when it comes to finance your next purchase.

Another key distinction between policy loans and traditional debt is that there’s no qualification. It doesn’t impact your credit score. So actually, their credit score is probably going up after they pay off that credit card debt. And it’s an unstructured repayment schedule so that they’re able to fit the payments into their cash flow.

If they’re feeling cash flush and have a lot of extra cash flow, they can put extra towards that policy loan and get it paid off and built up faster. But if they’re feeling pinched and they only want to make a small amount, they have the flexibility to do that with no questions asked. Because the entity that is guaranteeing that debt is the insurance company, and coincidentally, the insurance company is also the one who’s lending the money to the insured.

And here’s a better distinction when they made the credit card debt, they had to actually apply for the credit card and get permission for that lending amount. They were applying for permission from the bank or the credit company to give them a revolving line of credit. When they went to get the policy loan they were giving an order. They were literally telling them, This is what I want, go get it for me. That is not a small distinction.

The bottom line is, would you rather be controlled by the process or be in control of the process? Do you have a life insurance policy just sitting around doing nothing while you’re accumulating debt?

If that sounds like you, hop right on our calendar by clicking the Schedule your Free Strategy Session button. We’d be happy to talk to you about your situation and how to get you on the path to financial freedom.

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

Decoding Debt: Good vs. Bad – Surprising Insights!

Do you realize that there’s a difference between good debt and bad debt?

You see when I started in financial services, we were told that all debt was bad. But it wasn’t until I put things into practice that I realized, there’s actually good debt and bad debt.

You see, good debt is debt that’s backed by an asset. Bad debt, such as credit card debt, or student loan debt, are debts that are not backed by any assets. You see when you take out credit card debt or go and get a college degree and take on student debt, they give you that debt, that asset, that money to fund your purchases based on your ability to earn income and the potential to pay them back. They don’t have anything collateralized against an asset.

So what are some examples of good debt, and what does that look like, and how do you use that to get ahead financially?

Well, let’s look at a mortgage. You have the house as collateral against the mortgage. And in general, you’re going to have to put up some of your money. It’s called a down payment. So you might buy a $250,000 house, put down $40,000 as a down payment, and you’re financing 210.

Well, the bank’s in pretty good shape because if you default on that loan, the bank only needs to sell that house for 210,000. And the house theoretically should be worth 250,000. They should not have any problem getting equal with what they owe.

Now, let’s contrast that with a car loan. Typically, a good car loan is five years. It takes five years to pay that loan back. And that pretty much keeps up with the price of the depreciation of the value.

However, car loans these days, because the price of cars is now astronomical for any car, many people are financing over six or seven years. But what happens is if something happens to that car or you default on the loan, the value of the car is often less than what you owe on that loan.

The going rate on a car loan is about eight and a half to 9%. The going rate on a mortgage is six and a half to 7%. And the banks know this. That’s why they’ll give us a lower interest rate for an asset that has much greater value.

Let’s take a look at a third type of collateralized loan, a life insurance policy loan. Life insurance policy loans are leveraged against the equity of your policy, the cash value, and the unique thing about this is that the entity that’s giving you the loan, the insurance company, is also the entity that’s guaranteeing the cash value, the asset.

So consequently, they’ll charge you probably a much better rate. And more importantly, those loans are unstructured, which means you determine when, if, and how you pay back that loan. 

Now, it is recommended that you cover at least the cost of the annual interest. You see each policy anniversary if you have an outstanding loan, the insurance company is going to charge you a loan interest bill. It’s recommended that you pay at minimum the loan interest because if you don’t, it’ll accrue onto the loan principal balance.

I was taught that all debt was bad. Then I found out that there’s actually good debt and bad debt. And through practice, we found that there’s actually better debt, and that’s debt that you own and control. That is a life insurance policy loan.

If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation, schedule your Free Strategy Session today.

Also, if you’d like to learn more about exactly how we put this process to work for our clients, check out our free webinar right on our home page. The Four Steps to Financial Freedom. It outlines exactly how we put this to work.

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

Am I Too Young for Life Insurance?

I got my first life insurance policy as soon as I graduated from college. Now, this may seem counterintuitive to some people because I had just graduated college, and I didn’t have a family. What need did I really have for life insurance at that time? Well, I use that policy as a savings account, a savings vehicle, so I can accumulate wealth and keep control of it without the risk of losing any money.

When I’m talking to people about getting started with the infinite banking concept or a specially designed whole life insurance policy designed for cash accumulation. What I always say is you should start where you are with whatever cash flow is manageable for you.

Now, there are some caveats in that, with making sure the policy can be properly designed. So typically, multiplying your age by ten is a good monthly basis for you. So if you’re 20 years old, that would be a premium of $200 per month.

Now, what’s the benefit of starting young? Well, the sooner you get started, the sooner you’re able to get into the habit of saving and compounding interest within your policy.

In the early years, the compounding was really not significant. But the reason you want to start sooner rather than later is because of the compounding effect on the back end. When you have this policy, in effect for 40 and 50 years, your compounding annual increases are going to be significant. The longer you put off starting. The more you’re going to punish yourself.

As a rule of thumb, you should be saving about 20% of your income on a monthly basis. These policies are a great way to set up systematic savings and get you in the routine of that money is automatically taken from your account and put in a place where it could grow, compound, and still be accessed for financing your own purchases.

When you start planning, you don’t have a need for death benefits, you have a need for cash. You’re planning for your future needs for cash, because as we always say, you finance everything you buy. You’re either going to control the process or be controlled by the process of financing.

You see, at the age of 22, I didn’t necessarily know what my financial goals were going to be down the line, but I knew I was able to access a portion of that cash value for whatever I needed. I used it to go on vacation with my friends and paid myself back. I used it to get out of credit card debt and pay myself back. I used it to knock down my student loans and built that cash value back up.

And the thing is, once you start taking policy loans to pay off these things and to finance these things of life, your cash value continues to grow. Because I’m already putting in premium deposits and growing and accumulating that cash value. But once I start taking money out and paying it back in, that’s also contributing to the accessibility of cash within my policy, versus if I was just to do the traditional method of paying off Visa. At the end of the day, I’d have nothing to show for it.

And keep this in mind, when I took that loan, I took it against the equity or the cash value of the policy. That money never left the policy, and consequently, it continued to earn uninterrupted compounding interest. Every time I made a payment it increased the availability of more equity that I could use for another loan for another life event.

You see, my policy is with a mutually owned whole life insurance company. Meaning, that I am part owner of that company as it relates to my policy. Also, they use non-direct recognition, Meaning the performance of my policy is going to be the exact same. Whether or not I take a policy loan against that cash value.

When I take a policy loan, the insurance company gives me a loan right out of the general account of the insurance company. And they place a lien against my cash value and the policy. And what that means is, as I repay the policy loan and that lien gets reduced, I have access to more and more cash value over time.

So the point is, I am in complete control of this process. And if I ever needed to stop making a monthly loan repayment to the policy, I could do it. If I wanted to double down, I could do that. If I wanted to cut the payment down, maybe in half, I could do that. The point is, I’m in control of the whole process. And that’s not a small distinction.

I would much rather be in control of the financing function in my life rather than be at the mercy of the banks and credit companies in order to be financially free. You see, whoever controls your cash and whoever controls your cash flow controls your life.

With a policy like this, you are in control of your life.

If you’d like to get started on your path to financial freedom, it’s never too early or too late to start. Be sure to schedule your Free Strategy Session today. We’d be happy to speak to you about your specific situation.

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

The Triple Threat of Inflation Strangling Our Finances

We all know that inflation is running wild these days, but do you realize that there are actually three types of inflation we’re trying to combat at once?

The first and most obvious type of inflation is the one we see every day, price inflation. It’s the cost of goods and services and their price increases. We see this every time we go to the grocery store, every time we go out for dinner, every time we fill up our gas tank. We don’t need some government agency to tell us that inflation is up, although they’re telling us it’s down.

The Federal Reserve has two tools in its toolbox when it comes to combating inflation. The first is to raise interest rates. And that will hopefully slow down the economy and the effects of inflation. The second is to buy back bonds. This takes money out of circulation and tries to squeeze the money supply within the economy.

Here’s a good question. Who caused the inflation? Wasn’t it the Fed? Didn’t they print more money? Isn’t that sort of like the fox guarding the henhouse? I don’t know. Maybe I’m just cynical.

Now, to add on the second layer of inflation, it’s called wage inflation. Workers everywhere who are feeling the effects of price inflation are striking or lobbying for more wages. Why? Because they’re falling behind.

Recently the UPS workers had a strike and their union got them from a $135,000 contract to a $150,000 contract. However, most employees don’t have the pull of a union to increase their wages. So the question becomes, how do you keep up with these increasing prices when your salary or your income isn’t also increasing?

But here’s the issue. As these workers receive higher wages, that causes more price inflation. Because those wages increase the cost of the goods and services that the consumer is buying. The consumer always bears the brunt of all of these decisions.

The third type of inflation is something called lifestyle inflation. And this comes from the combination of the prices inflating and the wages not increasing. And what happens is, that because consumers aren’t necessarily slowing down their spending, they’re forced to put their charges on credit cards. And what that adds is an extra layer of cost, because credit cards have an interest rate being charged.

Basically, what’s happening is prices are increasing at a rate that’s faster than the wage increase. And consequently, what happens is people don’t know this or realize this. As they’re making their purchases, they’re realizing they don’t have enough money and if they want to make that purchase, they have to use their credit cards.

In December of 2022, the credit card debt across America was $916 billion. At the end of July 2023, it stands at over $1 trillion. People are charging on their credit cards now more than ever. And, compounding the increase in balances, is an increase in interest rates and a slower payback period. So what’s happening is people are charging more, getting less, and paying it over a longer period of time because the interest rate is eating into their cash flow.

The question becomes, how does this transition into not only the current lifestyle of people but also into their future lifestyle and their ability to save for their major milestones and eventually for retirement?

In the second quarter of 2023, more people opted out of their retirement accounts than ever before. This makes it clear that people aren’t saving as much for the future. But whether you’re ready or not, these milestones are going to creep up on you.

If you’d like to get started saving for your future, putting yourself, your business, and your family in control of your cash flow and your assets, be sure to check out our free web course, the Four Steps of Financial Freedom that explains exactly how we take our clients through this process.

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

Unraveling the Stealth Tax and How Inflation Impacts Your Wallet

Have you noticed it costs a lot more simply to exist these days? They call inflation the stealth tax because it’s not written in the tax code, but it affects every single one of us. So what impacts inflation?

First and foremost, it has to be the amount of money in circulation. The Federal Reserve, which is not part of the federal government, defines M2 money supply as the amount of money in circulation, plus money set aside in retirement accounts.

So why does that matter? Well, 20 years ago, the M2 money supply was $4.9 trillion. 20 years later, it stood at over $21 trillion. In 20 years, it grew by 400%. The reason that impacts inflation is that you have more dollars chasing the same amount of goods and services. That increases the price of those goods and services. 

So basically, as the government is digitally printing more and more money, the value of that dollar is going down every single time. And what’s happening is, as the government’s trying to decrease inflation, they’re putting a squeeze on that money supply, taking money out of circulation to try to bring inflation back down to a reasonable rate of what they define as 2%.

But what impact does that have on us as consumers, whether we’re a family or a business? Well, we’re fighting to buy the same goods and services with a pre-inflation cash flow in many cases, it could cause a severe cashflow pinch in your economic system. Our money has less buying power, meaning we’re buying fewer goods and services with the same dollars. That’s called the depreciation of the dollar.

One of the most recent pinches that we felt is with homeowners insurance because it only comes around once a year. But all of the costs of labor and materials have gone up so much that the cost of insurance for your home has also increased because it’s not locked in.

Here’s another thing that impacts our finances. 20 years ago, the federal debt stood at $5.6 trillion. Today, it’s over $32 trillion. In five years, it’s projected to be over $40 trillion.

Have you guys ever checked out nationaldebtclock.org? It’s kind of freaky.

Although the national debt is projected to increase by 70% in the next five years, the amount of taxpayers is only projected to increase by 8%. Where is the government going to get the tax dollars to pay for everything? And what impact will that have on our ability to live our lives and save for the future?

This is why it’s important to pay taxes on our dollars now and pay debt on our income now, rather than postponing it into the unknown future. Because the government has obligations and they’re going to have to pay for those obligations, but they’re not our obligations. By paying taxes on our income now, we’re not postponing that into the unknown future and taking it one step further and saving in a place that’s sheltered from taxes, where we pay taxes on the money once and then never have to pay a second time, is imperative to our financial security going forward.

Wouldn’t the best way to make your money last longer be to reduce or eliminate the taxes that you’re going to have to pay in the future? This is why it’s important to make your money more efficient. And again, one of the things that you can do is to shelter your money from taxes, but also do it in a way that you have access to that money. So you’re not deferring the tax, or kicking the can down the road, you’re sheltering the money. That’s a big difference.

If you’d like to learn about how we put this process to work for our clients so that you’re able to keep the money in your family and your business and out of the government’s checkbook.

Check out our free web course, The Four Steps to Financial Freedom that details exactly how we put this process to work. Or, if you’re ready to get started, feel free 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.

Revealing the True Cost of Your Money

Something I’m sure you heard us say before, is you finance every single purchase you make, you either pay cash and give up interest that you could have earned on that money, or you finance and pay up interest to another entity outside of your control.

Nelson Nash used to say this is Basic Finance 101. You’re either going to pay interest when you borrow or give up interest when you pay cash. The consulting firm Stern Stewart & Company charged their clients for consulting on how to make better financial decisions with their money based on Finance 101.

The problem was these multinational corporations were making poor decisions with their capital. They were recognizing the fact that when they borrowed, they paid interest, but they put a price on their own capital of zero. And consequently, they were making bad decisions with their money.

And here’s the point that Nelson Nash was making: your money, your capital has a cost. To think that your money does not have a cost basically means that the laws of gravity don’t apply to you.

Let’s take a look at that example.

Say you need to make a major capital purchase and the bank is going to charge you 8% to finance. And you’re putting a capital cost of zero on your money. The blended rate, the actual cost of that money would be 4%. In this example, if you were to earn 6% on that purchase that would be an acceptable rate of return. Because 6% is higher than the 4% blended cost of that capital. Basically, you’re making a profit. But in this scenario, there’s a fatal error baked into this cake. That is, your money has no cost.

What people don’t realize is that it’s very hard to acquire capital. It’s hard to save money. And if you have money sitting around waiting to be deployed, the worst thing you could do is deploy it in a way that is detrimental or costing you money. And this is what Stern Stewart pointed out to their clients, their capital had a cost. 

We see this all the time. People will say, hey, why should I take a policy loan and pay the insurance company? 5% when I have cash sitting in the savings account, earning 0%? But there’s a cost to that capital.

First of all, there was a cost emotionally to build up that capital, and to deploy it without taking advantage of any opportunity cost that could be earned on that money, is not being a good steward of that cash.

Now we’re going to take a look at that same decision after applying economic value added. Economic value added is a financial measurement of your use of capital. It will indicate the profitability of your operating decisions or how you’re using your money.

So looking at that example, again, the borrowing rate is 8%. So we know what it’s going to cost to finance. But now the market environment where you could invest your money has an average return of 12%. That becomes the cost of your capital. If you can’t get 12% on your money, then you would be better off putting your money in the market.

In other words, if you’re going to buy a piece of equipment and you can’t get at least 10 to 12%, 10 is important because that’s the blended rate. If you’re borrowing at eight and you can invest at 12, your blended cost of capital is 10%. If you can’t get at least 10% out of that opportunity, then there’s no sense taking advantage of it. You would be far better off or far better served by just putting your money in the market.

At Tier 1 Capital, we look at things through the lens of control and making your cash flow and your money work as efficiently as possible for you, your business, and your family. If you’d like to learn exactly how we put this process to work for our clients, check out our free webinar, The Four Steps of Financial Freedom, which lays out exactly how we do it.

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

Why How You Use Your Money Matters More Than Where It’s Parked

Most financial advisors out there are focused on accumulating assets under management, meaning you have a lump sum of assets managed somewhere else. How could that advisor obtain those assets to manage them and hopefully earn you a better rate of return?

Today we’re going to talk about why it’s more important to focus on how you’re using your money rather than where your money is parked.

When we meet with people to discuss finances, the conversation usually revolves or turns towards how they’re using their money. And I like to use a golf analogy. The financial services industry manufactures financial products. We’re going to call them the golf clubs. We as advisors show our clients how to use the financial tools. We look at how they’re using their money, or we call that the financial golf swing.

Now, here’s the question. If you want to get better at golf, which approach would serve you better? Approach A would be to buy the best golf clubs, and approach B would be to improve your golf swing, and how you’re using the golf club.

And so it is with finances. people are in constant search of the Holy Grail. The best financial product. It doesn’t exist. If you want to improve your situation, you should really work on how you’re using those products.

You see there are a few reasons why there is no perfect product. Number one is because they’re all designed differently with different rules and regulations around them. Number two is because people have different temperaments and there’s no one-size-fits-all financial product for everybody and it will depend on what your personal situation is, as well as what your goals are.

And I would add a third factor. We are in constantly changing economic times. What was right today may not be right tomorrow and certainly may not be right in ten or 12 years. And the point is, it’s not a one-size-fits-all type of thing. Ultimately, you need to custom tailor something towards you, your situation, and how you’re using your money.

One of the main characteristics we focus on when designing plans is flexibility. Flexibility for cash flow, flexibility for access to cash, flexibility to take on your financial goals even if they change as we go along the plan.

If you’d like to start building a financial plan and working on your golf swing, be sure to schedule your Free Strategy Session today. If you’d like to see exactly how we put this process to work for our clients, check out our free web course right on the homepage, The Four Steps to Financial Freedom.

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

Taking Control of Your Cash Flow with a New Financial Strategy

Have you been looking at your finances lately and realized it’s time for you to kick it into gear? Here’s a secret. The strategies that got you to where you are today are not going to be the same strategies that are going to move you forward toward financial freedom.

Most financial strategies promoted out there leave you out of control when you really need it. What do I mean by that? Well, you may be doing all of the right things according to conventional wisdom, paying off your mortgage as soon as possible. Living a debt-free lifestyle. Maybe you’re paying cash for your cars. Maybe you’re investing in the market with your IRA or your 401K. But here’s the trick. All of these things leave your money at risk. Even if you’re investing in real estate, you don’t have any liquid money.

So what happens when it’s time to finance something? Because everything in life is financed. You either pay interest to use someone else’s money, or you give up interest by paying cash. But where is the solution? Where is the financial freedom in this?

You see, following conventional wisdom puts your money out of reach when you need it most. And consequently, that forces us into borrowing when we have a lot of money, we just don’t have access to it. And consequently, this causes frustration. We’re frustrated because why do we have to borrow when we have all of this money sitting in these other accounts? 

Not to mention some of our clients do have money and accounts that they do have access to. But they don’t necessarily want to access that money because they’ll either be locking in losses or making themselves pay a huge tax bill next April.

So here’s really the point. What’s the use of having money if you can’t use it when you need it or you want to use it either for an emergency or an opportunity? Again, your money’s inaccessible. So what’s the solution?

I would argue that most of life’s frustrations come from not having access to money when you really want or need it. So how do you transition from this frustrated way of life to a life of financial freedom?

There’s one answer and one answer only. It comes in being in control of your cash flow and your assets. And you see, when you view things through the lens of being in control, all of a sudden your decisions become easier to make. You’re making decisions with much greater clarity because ultimately it’s really simple.

You say, If I do this, will I be more in control of my money or less in control of my money? And if you’re not in greater control, don’t do it. It’s that simple.

Let’s take a look at an example. Let’s say you want to buy a car and you go into the actual bank And they say, okay, you could finance over five years and pay 6%, or you could finance over seven years and pay 9%. Which option are you going to choose?

Here’s what happened.

The bank took your eye off the ball. They positioned it in a way that focuses on the interest rate. The five-year loan has larger monthly payments. The seven-year loan has smaller monthly payments. Again, when you’re looking at things through the lens of being in control of your cash flow, the decision is easy. 

Another great example of this is with qualified retirement plans. Money goes into these plans on a tax-deferred basis. Meaning, you don’t have to pay tax on that income in that year. However, what you’re actually doing is postponing that tax liability into the unknown future. These are just two examples of how financial services companies, and financial institutions, get us to do what’s in their best interest but is actually detrimental to us. 

So if I could give you one piece of financial advice, it’s this. Keep your eye on the ball. Keep your focus on controlling your cash flow and your cash. And that is a great starting place. If you’d like to get started with our process to put you back in control of your cash flow and make your cash flow as efficient as possible. Schedule your free strategy session today.

Or if you’d like to see exactly how we put this process to work for our clients, check out our free

web course right on the homepage. The Four Steps to Financial Freedom.

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

The Value of Life Insurance: How Much Can I Insure

Have you ever wondered how much life insurance, is too much life insurance? Well, here’s a secret. A life insurance company won’t insure you for more than you’re worth.

Now there are a few ways you’re able to calculate the value of a human life. These are methods that the insurance companies use to determine how much life insurance you’re actually able to get on a life for each different purpose. 

One method is called income replacement. The insurance company takes your current income and projects how many years you should be working to determine how much life insurance death benefit you can have on your life.

For example, if you’re in your twenties or thirties, or even your forties, the insurance company might determine that you could apply and receive a policy in the amount of 30 times your current income.

Contrastingly if you’re later in your life, the insurance company may determine that you only qualify for, let’s say, five years of your income. And that’s simply because we’re using a calculation to determine how much income you’re going to be losing if you were to die prematurely.

This is why it’s important to find the balance between when you’re making a decent income and when you are still young. That way you could get the maximum amount of death benefit on your life.

Another thing that the insurance company will take into consideration is the amount of debt that you have. It could be that you qualify for 30 times your income, plus 100% of your outside debt: mortgages, business equipment, car loans, or student loans. They’ll allow you to insure that separately over and above your income.

Another thing the insurance company can take into consideration is your net worth. They’ll take your assets, subtract your liabilities, and determine what is your net worth. Based upon that, they may allow you to insure 100% of your net worth. So that pretty much encompasses the personal uses. 

However, there’s also a business side. If you are a key employee of a business or an owner of the business, there’s a separate calculation that would be determined for additional death benefit coverage on your life. 

So if you’re a business owner, you can ensure the value of your business interest. For example, let’s say you own a business that’s worth $500,000 and you’re a 50% shareholder or 50% owner of that business. Your business interest is 250,000, and you could purchase up to $250,000 of life insurance coverage to insure the value of your business interest.

Another business use for life insurance is a key employee policy. With that, the insurance company is able to calculate the value of that key employee as it relates to the business, and you’ll be able to purchase a life insurance death benefit for that key employee. You’re able to have both a business policy where you’re insuring your equity in the business, and if you’re a key employee, you could have a separate policy or separate interest for the key person.

Life insurance companies are in the business of insuring risk. The thing they will not do is provide insurance for more than what the risk is.

You see, adverse selection is a distortion of market value. And simply what it means is you’re insured for more than you’re worth. Just like you couldn’t purchase a $500,000 piece of property and be insured for $10 million. The same thing applies to life insurance. You can’t take somebody who’s earning $20,000 per year and get a $50 million life insurance policy on them. The insurance company knows that there’s adverse selection in that situation.

That’s why it’s important to know all of these nuances or have your insurance agent know all of these nuances so that they’re able to advocate for you to get the most death benefit possible if that’s what you’re looking for.

If you’d like to get started with the life insurance policy, 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.

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.