Have you considered getting a life insurance policy but you’re turned off by the idea of an insurance physical? When it comes to life insurance underwriting, there are two main components that the insurance company looks at.
The first is financial. They’ll either look at a loan, your net worth, or your income to determine how much death benefit you qualify for. Just as you cannot over insure a building for more than it’s worth, you can’t ensure a human being for more than they are worth.
The second component of life insurance underwriting is the medical component. This is where the insurance company will assess your risk from a medical standpoint. They’ll do a deep dive on your medical history and review questionnaires and often order medical records or an insurance physical.
However, with these new advancements in technology, a lot of companies are using algorithmic underwriting where you don’t necessarily need an insurance physical. Especially if you’re young and healthy. We’ve managed to foster a few relationships with insurance companies who offer an express or algorithmic underwriting process, which means that the insured doesn’t necessarily need an insurance physical if they meet the qualifications of these program.
How the process works is we fill out medical questions, send it to the insurance company. The underwriter determines whether or not they need an exam, and if they don’t need an exam, the policy is issued within a day or two. If they need an exam, then they go through the process. But the key is you might have that option where you don’t need an insurance physical.
One caveat to this process is sometimes the insurance company will still order medical records, which can take more time and still allow them to go through the express program without an insurance physical. The key is to save you time and headaches of having to schedule an insurance physical. Most companies allow this to happen between the ages of 18 and 60 and for up to $1 million of coverage.
So if you’re looking to get started with a life insurance policy, whether it’s term whole life or a specially designed whole life insurance policy designed for cash accumulation, this may be the solution for you without an insurance physical.
Are you a business owner who is insuring your PCs for more than your VPs? You see, there are three main reasons why you would want to insure your key employees.
First and foremost is the fact that they are the people who are adding to the growth and profitability of your business. Let me give you an example. About 25 years ago, I had a business owner client whose building burned to the ground. And it wasn’t till after the fire that he realized that his building, which was worth over $250,000, was only insured for $68,000.
Most business owners would have seen that as a problem. But he along with his key employees, kept the business going and profitable throughout the time it took to rebuild the building.The point was he didn’t have proper insurance on his building, but he was able to grow the business and came out much further ahead than he would have had he lost a key employee. You see those key employees were the people responsible for keeping that business alive, even when he didn’t have enough insurance to rebuild the building.
You see, people don’t do business with you because of your building. They do business with you because of the people you have working and supporting your business and your operations. If something was to happen to one of them, what impact would that have on your business? And are you willing to take on that cost?
The second reason why you would want to insure your key employees is because with life insurance, it’s the only product that allows the problem the death of your key employee, to also trigger the solution, the death benefit and the cash flow that comes with this life insurance. Think about the devastating effects it could have. Losing a key salesperson, for example, on your business. Think about all of the revenue that your key employee brings in for the business and how many people within the business depend on those sales.
You see, in a lot of situations, the key employee is the founder or the owner of the business, somebody who might be older and the next generation is going to need two things, time and money. Time to make up the mistakes that they might make, and money to gloss over those mistakes.
So again, with life insurance, the problem also triggers the solution. When the key employee dies, it also triggers the solution of money that allows you to make mistakes during the time of transition.
The third reason why you would want to insure your key employee is is because life insurance is the only product that allows you to buy dollars at a discount. Think about it this way. If you had a key employee that passed away, you would need money to attract and retain a new key employee to replace them.
Again, only life insurance allows the problem, the death of that key employee, to also trigger the solution, an influx of cash into your business, exactly at the time you needed it most, on a tax free basis. Now, here’s the best part. If you’re using a specially designed whole life insurance policy designed for cash accumulation to insure these key employees, you, the owner of the policy, the business owner, has access to the cash value via the policy loan provision on a tax free basis. And you’re still able to earn continuous compound interest on that money all along the way.
So you’re able to access that money, let’s say, to reinvest in your business, maybe make a major capital purchase like new equipment for the business or new cars for your team. Or we had one of our clients access the cash in their policy to buy out a competitor.
You see, there are no restrictions on what you could use that cash value for. So it’s great for business owners who want to be able to access cash and still be responsible and ensure their key employees.
Also, if you’d like to see how we put this practice to work for businesses and small business owners, check out our Four Steps to Financial Freedom Free 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.
As business owners, we make financial decisions every single day. But when speaking with business owners in our office, it’s apparent that many of them fail to consider opportunity cost. What effect is this decision today going to have long term on your business cash flow and ability to grow?
When you’re first starting out in business, it’s all about survival. What can you do to get sales and maintain efficiency so your business doesn’t go under? But as your business matures, it’s important to make adjustments for longevity and efficiency within your business.
We always say it’s not what you buy, it’s how you pay for it. And the key is making the proper decisions with the information that you have to increase your efficiency and therefore stabilize the longevity of your business. One of the keys to efficiency is recognizing the difference between costs and opportunity costs.
Back in the 1800s, there was a French economist named Frederic Bastiat. Frederic Bastiat pointed out the difference between that which is seen and that which is unseen. And what does that mean?
Well, basically what we see when we’re making purchases are the costs. What we don’t see are the opportunity costs. The other things we could have done with that money had we not deployed that capital in the way that we did. And one of our tag lines or one of the things that we always tell people is that you’ll never see the interest you don’t earn by paying cash to make major purchases.
You see, as business owners, we make financial decisions every single day, and a lot of those decisions are based on cash flow. Can I afford this payment? Do I have enough capital to pay cash for this expense? But what’s not considered is, is there a more efficient way to use your money that will leave you in more control and leave you in a better position in the long run?
You see, we finance every single purchase that we make. What do we mean by that?
Well, whether you pay cash or finance, either way, you see the interest that you’re going to be charged. But when you pay cash, you never see the interest that you don’t earn on that money. And what we mean by that is basically, if you invested that money, what kind of rate of return are you giving up by giving up control of that pool of cash?
And once we understand the unseen or the opportunity cost, that helps us to make our decisions much, much more clear. Let me give you an example.
Let’s assume you’re going to invest $50,000 for a major capital purchase to your business. Now, if you finance, the bank tells you that you’re going to pay 8% to borrow their money, but you also have $50,000 of cash laying around in your corporate checking account and you say, hey, if I use this cash, it won’t cost me anything. Big mistake, because it will cost you money. You just don’t see the interest that you’re not earning on that money.
So, if your decision is to pay cash because you’re saving 8% on interest, that you’re not being charged. That, again, is a mistake because you’re not recognizing what the opportunity cost can be for that money that you have sitting in cash.
So you may be wondering how should you be making these purchases if everything all purchased is financed? What is the best way to use your money and make it as efficient as possible for your business and your family?
And that’s where we come in, because we can help you make the proper assessments that take into consideration not only the costs that which is seen, but also the opportunity cost that which is unseen. And again, once you understand the difference between the seen and the unseen or the cost and the opportunity cost, your decisions will become much, much more clear and much more focused.
If you’d like to get started with an analysis of your business cash flow and see if this is a solution that makes sense for you, check out our website at Tier1Capital.com. Feel free to schedule your free strategy session, or check out our webinar: The Four Steps to Financial Freedom. It’s free and right on our homepage.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.
We all know that inflation is running rampant these days and the federal governments national debt is now $31 trillion and counting.
Today, we’re going to cover the three things you can do today to protect your family and your business from the effects of inflation down the line.
The first thing you can do to battle the effects of inflation is to go long on your debt, and to go long, particularly, on your mortgages. You may be wondering why that is. Well, it’s real simple. When you go and take a loan from the bank and extend it as long as possible. You’re locking in those payments for that whole term. And what this allows you to do when you pay back your mortgage, the longer you can go on the mortgage, the dollars are worth less and less the longer you can stretch it out. Inflation is affecting those dollars just as it’s affecting your gas bill, your electric bill and your water bill.
In a nutshell, a dollar today is going to be worth less in the future, and 30 years down the line, it’s going to be worth potentially a lot less. So it’s going to feel like you’re paying pennies on the dollar because, quite frankly, you are.
Another reason why you want to go long on your mortgage is because if interest rates go down in the future, you can always refinance to create more cash flow. However, if interest rates go up in the future, you’re locked in at a lower rate and now the bank has the interest rate risk, not you.
Third reason you would want to go long on your mortgage is really simple. If you qualify for the interest tax deduction, you will be paying more interest with a longer mortgage. And the more interest you pay, the higher your tax deduction. So that tax deduction can offset the effects of inflation by giving you back more of the money that you spent.
The second way you could combat the effects of inflation is by deferring taking your Social Security income. Preferably at least until age 70. Now, a lot of people say, I don’t want to wait that long because I’m not sure Social Security’s going to be around. Well, let’s face it, if Social Security truly isn’t going to be around, does it matter whether you take it at 65 or 67 or 70?
So the point is this if you defer taking Social Security, that means you’ll get a larger check every month. And that larger check can allow you to counteract the effects of inflation.
The second reason you want to defer taking Social Security is because it will leave a larger survivor benefit for your spouse.
And finally, the third reason why you would want to take Social Security at a later age is because by getting a larger check, you now get cost of living adjustments on a larger base. That larger base, with the added cost of living adjustments, can help counteract the effects of inflation on your monthly retirement income.
Inflation erodes the buying power away from our dollars, but in retirement, we’re no longer working. So it’s important to make sure those dollars that we have are working as hard as possible for us and that we’re setting ourselves up and the best possible solution in retirement. By deferring, taking Social Security, you’re increasing your benefit amount and helping counteract the effects of inflation on your retirement income.
The third thing you could do to decrease the effects of inflation on your life is by purchasing a specially designed whole life insurance policy designed for cash accumulation. And you may be wondering why is that? And the reason why is simple. Because specially designed whole life insurance policies designed for cash accumulation have the power to make all of your other assets even more efficient.
So one of the ways that a specially designed whole life insurance policy can increase the efficiency of your other assets. Let’s take, for example, your house. Your house is there. You’re living in it. It’s not producing any income for you. So what if you took a reverse mortgage against your house?
The problem with that is most people say, “Hey, we’re leaving the house for our kids.” No problem. The kids might have moved out of the area. They probably don’t want the house, but they do want the money that the house is worth. Having life insurance gives you the permission to spend the equity in your house and you can leave them the money from the life insurance. So that’s one reason.
The second way a specially designed whole life insurance policy can make your money more efficient is by using it as a volatility buffer. Well, what does that mean? In the years that the market is down, you don’t want to take money out of that portfolio and have a down year. So what you do is you take money from the life insurance policy instead of from your portfolio, and that gives your portfolio some time to regenerate it`self, gain back the money that you lost in the year that it was down.
Another way you could use your policy to combat the effects of inflation is by using the dividends to help supplement your retirement income, often on a tax favored basis. And think of this, dividends from a whole life insurance policy should not be subject to federal income tax or State income tax. They won’t subject you to a Social Security offset tax, and they won’t contribute to a higher Medicare premium. And in most states, the death benefits will pass to your children, inheritance and or estate, tax free.
Another point to consider is when you buy a whole life policy, you’re locking in those premium payments. So it’s just like the mortgage, the dollars that you are spending on the premiums today are going to have a lot less buying power in the future. And so it’s not going to be as painful making those payments.
And finally, another way that whole life insurance can counteract or help reduce the effects of inflation. If inflation is higher, that means interest rates are higher. And if interest rates are higher, that means your dividends should be higher. As we mentioned earlier, those higher dividends could help supplement your retirement income on a tax favored basis.
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 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.
If you are making any type of purchase these days, you’re without a doubt experiencing firsthand the effects of inflation. Today, we’re going to talk about inflation in our economy and the impact of inflation and the national debt on our country.
Currently, the national debt in the United States is about to exceed $31 trillion. You see, it really doesn’t matter how we got here. That’s water under the bridge. The question becomes, what does $31 trillion in debt mean for you and me?
Having $31 trillion in debt really limits the options that our government has to combat things like inflation. You see, prior to 2022, the Federal Reserve, our central bank here in the United States, was artificially holding interest rates down to try and stimulate the economy. Well, what that causes or creates is inflation.
You see, by printing more money to stimulate the economy, all they really did was flood the economy with more money, chasing the same amount of goods and services. And when there’s more money chasing the same amount of goods and services, you’re pushing prices up, which causes inflation. So in order to combat inflation, the Federal Reserve, with the help of our government, is looking at increasing incrementally interest rates over time.
Here’s the problem, with $31 trillion in debt and inflation at around 8%, you have to raise interest rates at least to the level of inflation, about 8%. Now, here’s the problem. Our choices as a country of addressing this inflation crisis are really limited. And here’s why. At 8% interest on $31 trillion of debt, you’re looking at over $2.4 trillion of interest alone. Well, what does that mean? Think of it this way. $2.4 trillion of interest represents about 40% of all the revenue our government brings in. And that is a huge problem.
Well, let’s take a look at what that could mean for you and me. Let’s start with the question what is the government’s source of revenue or income? Well, it’s really easy. It’s our taxes. What would it mean for our country if 40% of our taxes was going just to interest on debt alone? Now, although these are huge numbers, it kind of relates to what happens in a household when there’s too much debt. A lot of times it’s hard and it becomes suffocating. And I’m sure we’ve all experienced that.
So you may be wondering how does that impact you and me? And the question is, what does the government normally use the revenue to do? Well, it’s to support government funded programs, things like Medicare, Medicaid, Social Security and other government funded benefits.
The next question is who’s going to elect the officials that are going to say, “Hey, yeah, no, cut back government spending. We don’t need those programs for our citizens anymore.”You see, our government only has two ways that it could address a crisis. It could address it legislatively by increasing taxes, having more money that they can use to solve the crisis. The second way is to print money or do it administratively through the Federal Reserve.
Here’s the problem. We’ve printed money and printed money and printed money. That’s always been the answer because you see, to raise taxes, people see that and feel that immediately. But printing money creates inflation, which we don’t necessarily see at least immediately. We see it ultimately in the form of inflation. And that’s where we are right now.
This is why we call inflation the stealth tax. It’s because it’s real sneaky and it sneaks up on us and all of a sudden our dollar has less purchasing power. Well, it doesn’t necessarily make sense to print more money when you’re trying to combat inflation, because that would just cause more inflation.
So that leaves us with one thing, and it’s raising taxes to solve this problem. So the question really comes down to this how do you protect yourself, your family, your business and your money from the devastating effects of both inflation and the potential for taxes to go up in our country?
If you’re interested in learning how to protect yourself, your family, you business, and your money, make sure to contact us for your free strategy session at Tier1Capital.com.
And remember, it’s not how much money you make it’s how much money you keep that really matters.
If you’re a business owner, then you know that your success or failure all comes down to one thing: cashflow. Are you wondering how you could increase your cash flow without making more sales or reducing your overhead?
We meet with business owners every single day. Those conversations revolve around three areas.
Two, how to reinvest in their business, to grow their business so that they can have a better future.
Or three, how can they utilize their business, and the cash flow from their business, to enhance their personal lifestyle and meet their family obligations?
Let’s face it, if you got into business on your own, you did it to become financially free. But whether you’re trying to expand your business, maintain your business or increase your lifestyle, it all comes down to one common denominator, and that is how you’re using your cash flow. You see, we discovered over 20 years ago that it’s not what you buy, it’s how you pay for it. It’s how you use your cash flow that determines the success of controlling your cash flow.
Here’s a simple example. Most business owners don’t like debt. They think debt is bad and hate having that weight on their plate. So they’ll accelerate their debt payments and get that debt off their balance sheet as quickly as possible. But what they don’t realize is that by giving up that cash flow every single month to that outside entity, it’s leaving you in less control and less financially stable position.
Think of it this way if you had one extra dollar at the end of the month, that dollar represents profit that you earned during that month. Now you have this dollar that you own and control or your business owns and controls. You make the decision because you don’t like debt, to take that dollar and throw it on one of your loan balances before you pay down that debt.
You owned and controlled a dollar, after you paid down that debt, the bank owns and controls that dollar. It’s your dollar and you willingly gave it to somebody else under the premise that it was advancing your financial position.
So here’s the kicker. By making that financial move, your net worth did not change at all. All that you did was transfer control of that $1 from you to an outside entity. So the question is, did it really move forward or did it just feel good?
So let’s go back to our original question.
How can you increase cash flow without having to increase revenue or without having to reduce expenses?
Well, it’s really simple. You make your money more efficient by making sure every dollar you use is leading you to financial freedom instead of advancing those other guys, the credit cards, the banks and the outside financiers, we take a step back and look through this lens of control. And we say, “Will this move leave you in more control of your money or will it give away control to an outside entity?” And when you look at it from this frame, the decisions are so much more clear.
The first step in increasing your cash flow as a business owner often comes down to a simple move, like refinancing your debt and extending the amortization schedule. What that’s going to do is free up cash flow every single month. Yes, it will pay down your debt at a slower pace, but you’ll have cash flow to save and build a pool of cash that you own and control and have access to while still earning continuous compound interest on that money, even when you access it to do things like grow your business or finance your lifestyle.
When we sit down with business owners, we’ll have a general discussion about how they’re actually utilizing their cash flow, how they’re using their money. And we think how they’re using their money is much, much more important than where their money actually resides. And the reason is, is because that generally creates patterns of profits or cyclical cash flow versus times where there’s no cash flow.
Once we have a good understanding of how the business owner is using their money, it’s easy to make some simple shifts that make their money more efficient and have it working for them to leave them in a stronger financial position from a cash flow perspective for their business and their family.
Just by making their money more efficient, by understanding how they’re using their money and making small adjustments to how they’re actually using their money. They don’t have to increase sales, which usually cost money, or reduce expenses which usually reduces services. We could increase their cash flow without increasing sales and without reducing expenses, and that’s the value that we can bring to any business.
If you’d like us to take a look at your business’s cash flow, feel free to visit our website at Tier1Capital.com to schedule your free strategy session today. We’d be happy to take a look.
Also, if you’d like to see exactly how we use this process for families and businesses, check out our free webinar, The Four Steps to Financial Freedom, found right on our website.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
When people find out how powerful, specially designed whole life insurance policies designed for cash accumulation are, oftentimes they want to put in as much money as possible on a monthly basis. Today we’re going to answer the question of how much premium is too much premium?
Just the other day we got a phone call from a client and they said, “Hey, I would really like to run all of my lifestyle expenses and all my major capital purchases through this policy. Is that possible and what would the benefits of that be?” In order to answer that question. We need to first step back and take a look at how things are done normally without the infinite banking concept or without a specially designed whole life insurance policy.
So every week or every month, money flows into your life. Money flows into your household or to your business. It could be your income from work, your income from your business. It could be passive income from real estate or other investments. It could even be an inheritance. Money comes into your life, and from there you pay your expenses. So think about it. Once the money gets into your account, into your checking account. There’s only four things you can do with it.
Number one, you could spend it.
Number two, you could save it.
Number three, you could invest it.
Or number four, you can defer it into the future through a qualified retirement plan. Things like IRA’s, 401K’s, 403B’s are examples of qualified retirement plans. And with those, you defer the taxes into the future.
Another word for defer is postpone, so that money comes into the account tax free. But when you take it out, it gets taxed.
The key here is you’re not necessarily saving taxes. All you’re doing is postponing the tax into the future when hopefully you’ll be in a lower tax bracket. But that begs the question, is that really what you want? Do you really want to be in a lower tax bracket in the future? And if you are, wouldn’t that indicate that you weren’t really successful at saving money?
So now that we’ve identified the four things that could happen to your money once it comes into your life, let’s just focus on, the spending aspect. Once what money comes into your checking account and you spend it on your lifestyle, necessary expenses, your mortgage, your rent, that money is lost and gone forever. And what we mean by that is you no longer have the opportunity to earn interest on that money.
So money comes into your life and you use it for lifestyle. You make any type of expenditures, regular bills, etc. Once you do that, the money’s gone, never to return. So what can you do to change that? To make it advantageous to basically pay your bills?
Well, it’s like this. When the money comes in, take a portion. Not all of it. Take a portion of it and put it aside in a specially designed life insurance policy and then you could access that cash value through the loan feature to pay for major capital expenditures like paying for a car, a vacation, or maybe your children’s college education.
The key here is you got to make payments back. But once that policy is built up and capitalized, maybe you’ll be in a position where you can save more money and start a second policy or a third policy. And then as those policies build up, then you’ll be able to access more and more of the cash value through the loan feature and utilize that to offset some of your lifestyle expenses. So this process allows you to both make your regular purchases and save so you’re never draining that tank and you are able to earn uninterrupted compound interest on your money. Because once you drain that tank, you’ll never see the interest you don’t earn on that money.
So now you always have a portion of that money working for you rather than for someone else. A way this could practically be implemented in your life may be paying off credit card debt. Maybe you have a credit card debt and you’re paying as much as you can every month and you’re putting hundreds or thousands of dollars towards this credit card debt, trying to knock it out.
What if instead, you took that excess payment, put it towards the policy, and built up cash value to then repay the credit card debt with a policy loan? Then as you repay the policy loan, you’re rebuilding your own capital instead of Visa’s or MasterCard’s.
So let’s back up to the question we started with. How much premium is too much premium? And it’s all about your cash flow. The last thing you want to do is overextend yourself with a monthly premium payment and not be able to sustain this policy.
Once you start a policy, you never want to get rid of it because the longer you have it, the better it gets. Most of the big benefits are on the back end. Nelson Nash used to tell me, “Tim, this is not a get rich quick type of strategy. This is a long term.”
He used to say, “Remember, I was trained as a forester. Foresters think 70 years in advance.” I may not be here, but somebody will. And if we set this up properly, somebody can benefit dramatically from that planning that you’re doing today. But the key is you’ll also be able to have access, liquidity, use and control of that money and continue to earn dividends and uninterrupted compounding of your money.
So the answer is, it will depend on your specific situation, your cash flow coming in, and your monthly expenditures that aren’t really changing things like your utilities, your food bill, your mortgage. You don’t want to run everything through the policy, but you have the ability to run some major capital purchases through the policy.
If you’d like to get started and learn how to put this practice to work for you and your specific situation, we’d be happy to talk to you. Hop on our calendar at Tier1Capital.com to schedule your free strategy session today. Or if you’d like to learn more about how we put this process to work for our clients, 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.
So you wanted to get started with the infinite banking concept and you went through the underwriting process and lo and behold, you didn’t qualify for the insurance. What next?
Not everyone who applies for a life insurance policy will qualify. There are two pieces of underwriting that you go through to get an insurance policy. First piece is financial, where they’ll look at your income and other assets to determine if you qualify financially.
The second piece is medical, where they’ll look at your overall health, maybe do a blood test, medical history, order your medical records to determine what the risk is of insuring your life, what is the risk of dying on time or prematurely from an actuary standpoint?
So you didn’t qualify medically or maybe even financial. So what does that mean? Well, it means that the insurance company won’t issue a policy on you, but that doesn’t mean you can’t get a policy on somebody else. Maybe your wife, your business partner, one of your children, and utilize the cash value in those policies. You see, all you really want to do is be the owner of the policy so that you can control the cash value and use the cash value through the loan feature to buy whatever you want, whenever you want. No questions asked.
You see, with a life insurance policy, there are two key players, the insured, whose medical information is used for the policy, and the owner, the person who has all of the benefits, the death benefit, but they’re also responsible for paying for the policy. But as the owner, you’re able to take policy loans out against that cash value, even though you’re not the insured.
So what that means is you can still implement the infinite banking concept. It just means that you’re not the insured. No big deal. You still own and control the policy and could again use it for whatever you want.
So what qualifications need to be met to ensure someone else and at the time of underwriting, that’s real simple. We need what is called insurable interest. Basically, you need to be able to suffer a loss from the insurance company’s perspective once that insured dies.
Think of it this way. I can’t insure my neighbor’s home because I don’t have an interest in that home. And similarly, I can’t insure some strangers life because I don’t have an interest in that person’s life. But I can insure my spouse, I can insure my business partners, I can insure my children or anybody else that I literally have an insurable interest in.
Other examples may be a roommate, someone that you split monthly expenses with or a cosigner on a loan. Another person you may want to consider insuring may be one of your parents. You’d have insurable interest and once they die, which statistically would be before you as their child, you would receive the death benefit. And keep in mind, life insurance, death benefits are always received income tax free.
If you are still interested in implementing this process with a specialty designed whole life insurance policy designed for cash accumulation, be sure to check out our website at Tier1Capital.com to schedule your free strategy session today.
So you’re ready to request a policy loan and you’re wondering exactly what’s going to happen. You may be wondering how do you request a policy loan and what does that look like? It depends on the company. And some companies allow you to request a policy loan via a phone call, a physical form, or a web form.
Now, a key distinction between a policy loan and a regular conventional loan is that you’re not asking permission to access this money within your policy. You’re giving an order to the insurance company. You’re saying, “Hey, I have cash value in my life insurance policy, I have equity. I’d like to take a loan against that equity, send me a check.” And they’re saying, “Oh, I’m checking this money. You have it. Here you go. Take the loan and we’ll talk to you later.”
A policy loan will not reduce or go against your credit score. And whether or not you make a payment or you’re late on a payment on a policy loan won’t affect your credit score. Again, you’re giving an order versus asking permission. This is a big deal when it comes to, let’s say, losing your job or becoming disabled, because when you’re applying for a loan conventionally in these circumstances, you’re asking permission.
You’re going to the bank or the credit company and you’re saying, “Hey, this is what I have. Can I have some money?” And they’re going to say, “How are you going to repay it? Can you prove that you can repay this money? And if not, they’re not going to allow you access to their capital.” But with a policy loan, that’s irrelevant.
You see, the key here is that the entity, the life insurance company that is giving you the loan is also the entity that’s guaranteeing the collateral. They’re actually figuring out how much equity you have in your policy and loaning to you against that equity. It’s called a collateralized loan. Not only is it a collateralized loan, but it’s also an unstructured repayment schedule. And what that means to you as the policy owner is there’s no payment schedule set up for you.
A lot of times clients will come to us and say, “Hey, I have X amount of money to put towards my policy loan per month. How long is it going to take?” Or, “Hey, I want to pay off this policy loan in two years or five years. How much do I have to pay to accomplish that goal?” And you see, this is key because being unstructured or having an unstructured loan repayment allows you to pay back the loan within your cash flow. You’re not pinching your cash flow to fit into the amortization schedule or the terms and conditions that a bank or a credit company gave you. You’re literally fitting the monthly payment into your cash flow to accommodate your life, not somebody else’s.
There’s a delicate balance between paying your policy loan back too slowly and paying your policy loan back too quickly. When you pay back too slowly, you run the risk of the interest accruing and not covering the interest expense. And what happens is if you don’t pay it at the end of your policy year, it gets tacked on to the balance.
However, when you pay yourself back too quickly for your own cash flow, you do have the option of just taking another policy loan so you feel less pinched going forward. But the key is now you’re in control and you make the decision as to how soon or how long it takes you to pay back the loan. You also make the decision if you want to take another loan. The key benefit of repaying your policy loan is freeing up that cash to be available for you and your financial goals in the future.
Another thing that happens when you take a policy loan is uninterrupted compounding of interest. Now, this only occurs with certain types of companies. They have to be mutually owned by the policy holders, and they need to recognize non-direct recognition so that dividends aren’t affected by a policy loan balance. But the key is your money is continuing to grow at the same pace that it would have had you not borrowed. So the only cost is the interest cost.
Basically what this means in plain English is that your policy will continue to grow the exact same way with the policy loan as if there was no policy loan at all. So your money could in essence be in two places at one time because you never drained the tank. The money is still within your life insurance policy, but you have a separate loan where you have access to that money to accomplish your financial goals, whether it be taking advantage of an opportunity, paying off your debt, or sending your kids to college.
And that’s the key. With a collateralized loan, your equity stays in the policy. The insurance company puts a lean against your equity, and they give you a separate loan from their general account. And as you pay that loan down the equity increases, it’s really that simple. Because a policy loan is a collateralized loan and your money continues to grow uninterrupted compounding, you’ve literally tapped into what’s known as multi duty dollars. It’s as if your money is in two places at once because quite frankly, it is. Your money still growing in the policy as it would have had you not borrowed and you were able to obtain a loan to do whatever you want, whether it’s to make an investment or to pay a bill or to pay off an emergency. Talk about efficiency.
When you take a policy loan, you’re taking a collateralized loan against the cash value. But think about this. You still have all the benefits of your life insurance policy. Now, the death benefit is reduced dollar for dollar, but you still have that death benefit. You may have other riders like a terminal illness, a critical illness, or a disability waiver of premium. Plus, you’re able to use that loan for whatever you want. Maybe it’s growing your business, maybe it’s taking advantage of a market opportunity or investing in real estate or anything else that you may see as an opportunity out there.
So this is what we mean when we’re talking about multi duty dollars. Your money is in the policy. It gets all the benefits of the policy, the death benefit, any additional riders. And you’ve used it to either make an investment, take advantage of an opportunity, or to clean up an emergency.
When you’re thinking about taking a policy loan or you’ve taken a policy loan, keep these issues in mind.
Number one, you’re giving an order, not asking permission.
Number two, unstructured loan repayments, which means you can pay it back within your cash flow and on your timetable.
Number three, uninterrupted compounding. Your money continues to grow as if you never tapped into it.
Number four, multi duty dollars. You’re getting $1 to do the job of three, four or sometimes $5.
You see, it’s all about maintaining control and efficiency of your cash flow and your money. You want to maintain complete liquidity use and control of your money so that you’re able to continue to grow the money and still accomplish your goals like sending your kids to college or taking advantage of opportunities.
If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation and put this process to work for you, be sure to visit our website at Tier1Capital.com to schedule your free strategy session today.
Have you heard about life insurance policy loans and wondering what they are and how they work? A policy loan is a collateralized loan against the equity or cash surrender value in your life insurance policy. And this is a key distinction, because several times I’ve spoken to people who were misinformed, on exactly what a policy loan is.
They were told that a loan against your policy is a loan against the death benefit, that is technically not correct.
Although policy loans will decrease your death benefit dollar for dollar if you’re to die with a policy loan balance, it’s technically collateralized against the policy cash value. And this is a big difference because you don’t have access to that full death benefit while you’re alive, but you do have access to the amount of cash value that has collateralized and built up in your policy throughout your policy years.
Now, it doesn’t matter which insurance company you’re working with as long as you have a cash value building life insurance policy like a whole life universal or variable universal life policy, you have access to the policy loans via the policy loan provision included in those contracts.
So the next issue with policy loans is when or how soon can you take a loan or borrow against the equity of your policy? And the answer is it depends. It depends on the company. Some companies allow for loans after ten days or within the first 30 days. Other companies discourage policy loans in the first year.
It’s important to address these questions before placing your policy in force, because the last thing you want to do is plan on using that policy value during the first year and not have access to it to accomplish your short term goals.
The next question is how much cash are you able to get your hands on and that again, depends on the policy. If you have a policy designed for cash accumulation, typically it has some type of rider and the rider allows you to build up that cash value quicker so you have access to it sooner.
You can expect about 85 to 95% of the contribution that’s going towards the rider to be accessible immediately. However, if you have a regular or whole life insurance policy or other permanent life insurance policy, there’s likely some cash value in it, especially if you’ve had it for several years. And typically you could get your hands on about 90% of that cash value via the policy loan.
So you’ve decided that you’re ready to take a policy loan. How do you go about accessing that money? Well, it’s real simple. You’re giving an order to the insurance company with either a form, a phone call or going online and requesting that policy loan. They’ll either send you a check or put the money right into your bank account.
But then the next question becomes, how do you pay that loan back? And do you have to? You see, life insurance policy loans are unstructured loans, which means there’s no coupon booklet or payment schedule that goes along with the loan. It’s completely up to you as to when or whether you pay the loan back.
And the reason is the entity, the insurance company that is making the loan is also the entity that is guaranteeing the collateral, the equity in your policy. The insurance company is literally verifying to themselves whether or not you have equity in your policy. As the equity appears or when you have equity, the insurance company can release that money to you through the loan provision. Since it is a loan, a separate loan from the insurance company against your cash value, the policy loan will accrue interest.
And what that means is basically on your policy anniversary, the insurance company will send you a bill for interest if you have a loan outstanding. It’s typically anywhere between 4 and 6%, maybe a little more, maybe a little less, and it can fluctuate.
But every year you’ll get that policy loan interest bill and you have the option to pay it. And as long as there’s enough cash value within the policy, you don’t have to pay it and it will accrue onto your loan balance. But we do recommend that you at least repay the loan interest so your loan balance doesn’t continue to grow year after year.
And this is important, you understand, because the loans are unstructured, the decision to pay back the interest or to pay back the principal is completely yours. The interest is charged, but the decision to pay it is yours. And that’s why we utilize policy loans to help our clients regain control of their money.
Now, you may be wondering why would you want to pay that policy loan back? And the answer again is control. As soon as you pay that policy loan back, you’re releasing equity within that policy. So you’re able to access that money again in the future.
This is very different than when you’re repaying your loan to, let’s say, a credit card or other loan, because once you give that payment to that other entity, you no longer have any access or control or you’re giving up opportunity costs on each one of those dollars.
You see with policy loans if you take a policy loan, this becomes your loan balance. Your equity is reduced dollar for dollar by the loan balance. Every payment you make on the loan reduces the outstanding loan balance and increases your equity. And that’s the key. Now you control that money because you’re the owner of the policy. You could ask for another loan, and another loan, and another loan, as long as there’s equity you can borrow.
Now, at this point, you may be wondering, what do people use policy loans for? And there’s a variety of reasons. We have people who are buying real estate, investing in their business, doing other investments in the marketplace, earn an external rate of return as well as their internal rate of return within the policy.
We have other people who are trying to get out of debt and they’re building their savings in the policy and also getting out of debt simultaneously. And what this allows to happen is they’re able to get out of debt often faster and still build their savings within the policy so they don’t have to put themselves in that situation going forward.
Another reason why people would borrow against their life insurance cash value is to create a volatility buffer against their retirement portfolio. We’ve done a previous video that explains how a volatility buffer works, but real simply, instead of taking money out of your retirement portfolio in the year that the market is down, you would forgo taking money out of that account, borrow money against your life insurance to supplement your income and give your portfolio an opportunity to regenerate or regrow itself.
Another great use of policy loans could be sending your children to college and funding the tuition through the policy loans. Did you know that accessing money from your life insurance policy and building that equity within your policy is completely off the FAFSA calculation in most cases?
Another reason why people would take a policy loan would be to buy a car or to remodel their home. And finally, for a medical or financial emergency, you see the key in life is having access to capital. And one of the things about life insurance, cash values is that money is liquid and you can use it and you control it. We call it liquidity use and control or “the luck factor.”
If you’re ready to get started with a whole life insurance policy designed for cash accumulation or could use some more guidance on using your existing life insurance policy, be sure to visit our website at Tier1Capital.com.
