Tier 1 Capital Blog

Infinite Banking for Near-Retirement: Maximizing Financial Efficiency

Are you nearing retirement and considering implementing the infinite thinking concept, but have the feeling that it’s too late?

I was talking to a guy this week who’s nearing retirement in only six months at age 58. He came to me with concerns about how to take his buckets of retirement assets and also implement the infinite banking concept with a policy. He wasn’t sure how the two worlds fit. When it comes to retirement money during the accumulation phase when you’re saving up and building up your pool of assets. It’s easy in the matter of all you have to worry about is saving. However, as you get closer and closer to retirement, the focus shifts from saving to: “How do I make sure these assets last and last me my entire lifetime?”

So you go from a mindset of “I’m willing to take some risk because I have some time to recapture any momentary losses” to a mindset of “I can’t afford to have any losses because retirement is right in front of me.”

As he’s nearing retirement and as anyone’s nearing retirement, you have to consider that your income is going to stop. And in this family, his income was $145,000. Now his wife is going to continue to work for an additional four or five years. But then her income’s going to stop also. We need to make sure these assets are going to last as long as they do.

So the real question is how do you make his money as efficient as possible so that he can reach all of his income and retirement goals?

Implementing the infinite banking concept in this person’s case could mean something very simple. Giving him permission to spend down his assets. Spend down those assets without worrying about sacrificing his wife’s livelihood should he pass before her and also his livelihood should she pass before him. Additionally, we could lock in a legacy piece for their two daughters.

So let’s think of this in two steps.

Step number one is to set up a policy on him so that his wife has survivor income generated from the death benefit in his policy.

Step number two is purchasing a policy on the wife which will give her permission to spend down all of the assets to supplement her retirement income and her survivor income needs without jeopardizing the legacy for their children.

Now we can’t forget that these are specially designed whole life insurance policies designed for cash accumulation. So what does that mean in this case? Well, by transferring some assets from these retirement income accounts, and using that money to fund life insurance premium, you’re moving money from at risk and forever taxable to safe money that’s never taxable, that you have access to, full liquidity use and control over so that as life goes on, you still have access to that money. And even after accessing that money, you’re not interrupting the compound interest curve on that safe pool of money.

And in our discussions with this couple, we found a few things. Number one, they want to travel. Well, they can borrow against their life insurance cash value to pay for their trips and then pay back those loans using their retirement income.

The other thing they want to do is every four or five years, they want to buy a new car. Again, they could buy the car by borrowing against the cash value of the life insurance and then make those payments back to the policy to replenish for the next vacation or the next vehicle.

So there’s a lot of things that they can do. And by the way, this is making their money more efficient because they’re not losing the opportunity cost by paying cash. Neither are they losing opportunity cost by financing directly with a bank or a credit company.

Another thing to consider that these policies can be used for is a volatility buffer. Since all of their money is in investments. There is risk associated with investments by nature. If for example in a down year, a year where the market went down, their account value went down, they still need to generate income because their income from their jobs has been turned off. They could instead borrow money against their life insurance policy so they don’t have to have a double negative in a year.

So there are a lot of reasons when you’re on the threshold of retirement where life insurance can really come into play and make your retirement better.

If you’d like to get started with an infinite banking concept policy, a whole life policy designed for cash value accumulation, 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.

Empowering Your Children Financially: A Guide to Generational Wealth

Everyone knows that money is important. But have you ever wondered how to educate your children on becoming financially literate and how to become financially free?

Most families don’t talk about money. That’s why you’ll see a situation where a parent, a father or mother, start a business and they’re really good and really focused and they’re making money and their children are spending that money. But nobody talks to the children about how to use money and what it actually means in their lives.

But what we have found is that families that are successful generation after generation talk about money. They talk about keeping it in the family. You see, money has to flow. And it’s really simple. It’s either going to flow away from you or it’s going to flow to you. What better way to keep money in the family than to have money flowing to you and less or as little as possible flowing away from you?

This is why we talk so much about keeping control of your money and regaining control of the financial function in your life, for yourself, your family, and your business.

It’s really simple. You start policies on your children at whatever age they are, right now, and you fund those policies to a level so that when those children graduate college, there’s enough money in the policies to pay off their Stafford loans, $27,000.

And if you’re unfamiliar with Stafford loans, you get 5500 freshman year. 6500 sophomore year, 7500 junior and senior year. $27,000.

Now, here’s where the program really shines. Six months after your child graduates from college in November of the year, they graduate, they’re going to get their statements and coupons and they have to start paying a monthly payment over a ten year period to pay off the Stafford loans.

Now, in November of that year, they borrow against their cash value pay off their Stafford loans in full, and now they still have the monthly payment. They redirect the payment back to their policy. And in so doing, in ten years, the policy loans are paid off and at that point, your kid probably has somewhere in the neighborhood of $50,000 in their policy. 

In and of itself, maybe this doesn’t mean much, but let’s compare it to what their roommate is doing. The roommate got the same Stafford loan, $27,000. Their parents didn’t set up a policy. So, in November of the year they graduated, they got the statement from the Stafford loan, whether it was Sallie Mae or Fed loan. And now they’re making that same monthly payment that your kid is making, but they’re making it to Sallie Mae.

Now, here’s the deal. In ten years, their loans paid off. In nine and a half years, your kid’s loan has paid off. In ten years. they have no money. In ten years your kid has over $50,000 of cash.

Whatever your child chooses to do, he or she can do because you had the foresight of number one, setting up the plan. And number two, teaching them to use the plan in a way that the money will always come back to them, Not to mention the added benefit, the death benefit. After all, we are using life insurance policies that are guaranteed on that child’s life. So should they become uninsurable down the line? They have guaranteed death benefit to pass on to their family. But you see, it’s not enough just to set up the policy. Teach your child how to use the policy, that’s the key. And that’s where we could help you.

We like to pass this information down from generation to generation. It’s not enough in our eyes to set up you to be financially independent. We want to pass those traits down to the next generation and more importantly, generations to come.

If you’d like to set your family up for financial freedom for generations to come, schedule your free strategy session where we could talk one-on-one about your specific situation.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financing vs. Debt: Making Your Money Work Smarter

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

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

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

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

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

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

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

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

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

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

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

Optimizing Your Infinite Banking Strategy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Power of Leverage in Financial Planning

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

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

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

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

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

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

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

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

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

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

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

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

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

Maximizing Your Money: The Efficiency of Purchasing Decisions

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

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

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

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

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

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

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

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

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

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

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

Building Your Infinite Banking System: Start Where You Are!

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

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

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

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

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

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

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

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

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

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

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

If you’d like to get started in creating a tailwind instead of flying into a headwind, schedule your free Strategy Session today. Or if you’d like to see exactly how we put this process to work for our clients, check out our free webinar, The Four Steps to Financial Freedom.

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

The Power of Leverage: Grow Your Wealth with Smart Financial Strategies

Are you looking to get the most bang for your buck? Well, here’s the secret. It’s called leverage.

There are many definitions of leverage, but the one I like best in financial terms is to use the least amount of money to control the greatest amount of assets. Think about it. For real estate investors, what do they do? They borrow other people’s money. They get bank loans to buy real estate, and then they let their tenants pay the mortgage.

When you’re investing in real estate, you want to put as little down on that property as possible, right? The reason why is that the more control of your cash you have, the more investments you can make down the line. You have your money working for you, as well as other people’s money working for you as well as the mortgage.

But many times we run into people who say, I’m buying a piece of real estate and I’m going to pay cash for it. Let’s say it’s going to cost $250,000, my question to them was, why are you doing this?

“Number one, it’s a good investment. Number two, I’ll collect the rent.”

Well, that may be true, but think of it this way. If the rents were that good if you use leverage to purchase that property instead of using $250,000 to control one piece of property, that same individual can use $250,000 to control five properties. Then you would have five rents coming in.

So if you were to pay cash for a purchase, what often isn’t taken into consideration is the opportunity cost. You don’t consider what that money could have been earning you had you not parked it in that investment or that piece of property.

What we see is the interest we’re going to pay when we finance. What we don’t see is the interest we would give up by paying cash. We fixate on the things we see and we completely ignore the things we don’t see.

So how do you get the maximum return on your money? Well, the secret lies in using the least amount of dollars to purchase the biggest assets possible. The way you do that is by using other people’s money.

For example, a bank with a mortgage. Another example is using a whole life insurance policy cash loan to leverage against your existing cash value without interrupting the compounding of interest within your contract.

So the bottom line is having as little of your money in the game as possible so that you can create a larger net worth by leveraging other people’s money, whether that be money from a bank or money from the insurance company.

Now, you may be wondering, how exactly do I use a life insurance policy loan to make the best return possible on my money? Well, when using the policy loan provision, your money doesn’t ever leave your contract. The insurance company gives you a separate loan from their general account and places a lien on your policy cash value. Your cash value continues to grow and compound as if you never touched it because you didn’t, and you’re able to use the cash to go make outside investments and hopefully earn a higher rate of return.

So here’s an example of the evolution of using a life insurance policy to make real estate investments.

You fund a policy in year one with an annual payment. You borrow against the cash value of that policy to pay the closing costs. On the first piece of real estate, you buy. Two or three years later, you pay back that loan completely. You paid premiums for a total of three years and now there’s enough money to borrow against the cash value to pay not only the closing costs but also the down payment on that property.

Two or three years later, you pay back that loan and now there’s enough money to borrow against your cash value to pay closing costs and down payments on two properties. You just rinse and repeat over your lifetime. You’re building a large net worth in real estate as well as building a large net worth in cash value of your life insurance policies.

So you may be wondering, hey, what’s the difference? In both scenarios, I’m paying closing costs and the down payment, and getting a mortgage, and losing interest all along the way. However, using this method allows you to control the cash flow along the way and recapture the interest paid by passing it on in your legacy using the death benefit.

So using life insurance policy loans to make your investment purchases can make your money more efficient because you’re not losing out on the opportunity cost of your money. You’re still able to make the investments. And with time, you’re able to build a cash value that you own and control so that you’re able to make more and more purchases.

The trick is to leverage $1 to allow you to build an empire.

If you’d like to get started with a cash-value life insurance policy used and designed to leverage your cash to make more investments, schedule your free strategy session so we can talk specifically to your situation, or 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.

Personalizing Policy Design for Infinite Banking with Whole Life Insurance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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