Tier 1 Capital Blog

Taking Control of Your Cash Flow with a New Financial Strategy

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

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

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

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

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

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

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

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

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

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

Here’s what happened.

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

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

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

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

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

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

Guaranteed vs Non-Guaranteed Values of a Whole Life Insurance Policy

When you’re dealing with a whole life insurance policy, whether it be a normal whole life insurance policy or a whole life policy designed for cash value accumulation, there are a few values that you may want to look at. The guaranteed values and the non-guaranteed values. And you may be wondering what’s the difference between the two.

Assuming you purchased a life insurance policy with a mutually owned life insurance company, you’re going to have guaranteed values and non-guaranteed values listed on any policy illustration.

Basically, the guaranteed values are the worst-case scenario. How is this policy going to perform if there are no dividends credited toward that policy?

You see when you’re looking at a policy illustration, there generally are two columns. One column for the guaranteed values and one for the non-guaranteed values. The guaranteed values assume no dividends are ever paid in any year. The non-guaranteed values assume that dividends are paid at their current rates prospectively into the future. When you’re looking at those non-guaranteed values, the only thing that we can guarantee is that those numbers are not going to be what you actually experience. 

You see, that stands true for the guaranteed and the non-guaranteed values in most cases with these mutually owned companies because as soon as a dividend is credited towards your policy, the guaranteed values change. The only non-guaranteed dividends are those that haven’t been credited yet. Once that policy dividend is credited, it’s set in stone. However, next year’s dividend is not. That’s to be determined.

You see these illustrations show you the worst case scenario and a scenario projected going forward, and the scenario projected going forward based on today’s dividend scale. However, neither of those values is actually accurate. You see, dividends could be better in the future, they can be worse in the future. Meaning that they don’t necessarily have to declare and pay a dividend.

However, the companies that we recommend have been paying dividends for a minimum of 125 consecutive years. They’ve paid dividends through world wars, recessions, and depressions. The assets of the life insurance industry actually grew during the Great Depression. So as bad as things got, the life insurance companies were a rock during stormy times.

One of the reasons why we love these whole life insurance policies so much is because they’re actuarially designed to get better and better every year. They’re not dependent on the stock market or other economic factors. They depend on the well-being and the profitability of the insurance company.

There are three things that are going to determine the performance of your policy. 

Number one, the insurance company has to assume that people die. That’s assumed mortality. Insurance companies are really good at overestimating the cost or how many people are going to die. If there’s a saving on the mortality costs, meaning people die later rather than sooner, that money gets to be used or transferred over to the dividend account.

Similarly, the insurance company assumes what it’s going to cost to administer the policy. Again, they usually overestimate what it’s going to cost. And any savings are transferred over to the dividend account.

Lastly, the insurance company needs to put that money to work. All of those savings get put to work or invested into various asset classes and they use the interest rate that they earn on that money to further build the dividend account.

In conclusion, those illustrations that you see, can and will change. One thing that is for sure, though, is that after you have cash value credited to your policy, you can’t lose that money.

If you’d like to get started with the whole life insurance policy designed for cash value accumulation, schedule your free Strategy Session today or check out exactly how we put this to work for our clients and watch our free 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.

The Value of Life Insurance: How Much Can I Insure

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If you’d like to get started with the life insurance policy, be sure to schedule your free Strategy Session today. And remember, it’s not how much money you make it’s how much money you keep that really matters.

Transitioning From Earned to Passive Income

As you go through life, everything changes. The only thing certain in life is, in fact, change. So when you first get a job or you first start in business, your goal is to create 100% of your earned income to support your lifestyle. And as time goes by and you evolve towards retirement, your reliance on earned income will go down and you will transition to 100% of your lifestyle being funded by passive income. And as we’re evolving from 100% earned income to 100% passive income, there are various stages.

Now, whether you are a W-2 employee or a business owner, When you’re first starting out, oftentimes you’re just making enough to get by. All you want to do is to support your expenses and your lifestyle. However, over time, and as things change, hopefully, you’re able to earn some more. Maybe you got a promotion or expanded your business. 

You’re earning enough income to not only cover your lifestyle but also to put money away in a savings account or an emergency fund. And then phase three, really simple. You have enough to cover your lifestyle. You have enough for your emergency fund. And now you can start investing to create assets that will generate passive income. And the fourth phase is when all of your lifestyle can be covered with income from passive sources.

According to a recent study by Intuit, 61% of business owners around the world struggle with cash flow. That means they’re not covering their lifestyle. 69% of business owners either sleep less or admit to losing sleep due to cash flow concerns. And the point is these people are having trouble covering their overhead. So it’s almost impossible for them to start saving because they’re dealing with these cash flow issues. 

So the question becomes, how do you transition between these phases? A lot of times people try to go from phase one all the way to phase three, where they have passive income generated for them through their business. However, it’s important to build a foundation of savings that you have liquidity, access, and control over so that you are not completely bogged down by debt and other financial pressures that come with these big expenses.

That’s why it’s really important to go from phase one to phase two. You need to create that emergency fund, that savings that can be your backstop whenever you go to another phase and then all of a sudden the rug gets pulled out from under you.

One way we help our clients to build that safety net and to build an actual pool of cash that they have liquidity use and control over is by using specially designed whole life insurance policies designed for cash accumulation so that they’re less dependent on banks and finance companies and they’re actually able to own that finance function in their own life.

So instead of going to the bank down the street to finance a purchase for their business or their family or anything like that, they’re able to go to an entity that they own and control and they have a contractual guaranteed access to that cash to finance the things of life. Whether it be a business purchase, like a new vehicle, or they want to go on vacation with their family and they need the cash flow to do so.

The key there is that because they’ve taken this step to create that savings through a specially designed life insurance policy, they now have access to capital and nothing is telling them that they can’t take some of that money and use it to grow their business, to create passive assets. And that’s the key. 

You see, these policies are great for a few things. Number one is getting out of bad debt and debt that has an excessive amount of interest being charged or maybe you want to refinance that debt through the policy so you own and control those terms.

Also, it’s a great place to warehouse wealth because you have tax-deferred growth within the policy as well as guaranteed access through the policy loan provision and it’s also a great place to store money for investments.

You can put money into the policy and then borrow against the cash value in that policy to go out and make investments so you’re able to earn a higher rate of return on your money. Whether that be investing in your business or a great stock opportunity, or maybe you want to make a loan to your family member.

The possibilities are endless with these policies because you own and control the financing function the only person you need to qualify for the loan with is you. And that’s a key point. You’re not asking permission when you request a life insurance policy loan. You’re giving an order that is not a small distinction.

If you’d like to get started with this process, be sure to schedule your free strategy session today. Also, if you want to learn exactly how we put this process to work for our clients, check out our free 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.

Effects of Inflation on Whole Life Policies and Premiums

With inflation being a hot topic these days, a natural question may be, are my life insurance policy and my life insurance premiums inflation-proof? And how exactly are they impacted by inflation?

Based on the data inflation is officially a problem that we’re going to have to deal with. And based on experience, we all know the impacts of inflation. In December 2021, inflation stood at three-quarters of 1%. It wasn’t even calculated at 1%. In August of 2022, inflation was over 9%. And in December of 2022, it was down to 4.6%. Still a far cry from 75 basis points.

Now they call inflation the stealth tax because we don’t see it as a tax. It’s nowhere in our tax returns. It’s nowhere on our payroll checks. However, it impacts each and every single one of us, some more than others. We know we’re dealing with inflation, every time we go to the grocery store, every time we fill up our gas tanks, every time we get our utility bill, we are experiencing the damaging effects of inflation.

Now, pivoting to life insurance, how exactly does inflation impact the death benefit and the premiums? Well, keep this in mind. Inflation impacts everything. The question that needs to be answered is, is inflation impacting us positively or negatively? Because the news is not all bad.

Take your premiums, for example. With a whole life insurance policy, your premiums are locked in for your whole life. Whether your policy is a ten-pay policy paid up at 65 or a paid-up at age 121. Those premiums are contractually guaranteed to never increase. So the longer you can extend that premium payment period. You’re also paying those premiums with dollars that have been affected by inflation. So when you get to the tail end, let’s say age 121, the value of those premiums has been greatly affected by inflation. 

A candy bar back in the sixties cost, what, $0.10? Today, you’re lucky if you could get a Snickers for $1.50. Think about that in terms of your premium. Your premiums are going to stay the same. But if you waited all that time, it’s going to feel like a nickel. And that’s the point. Inflation is going to affect your life insurance premiums positively because the dollars are going to have less purchasing power, the longer you extend your premium payment periods.

Now, going on a little tangent, the same applies to your mortgage. This is why it’s important to consider taking out a 30-year mortgage instead of a 15-year mortgage because you have a lower payment to begin with. And by the end of that term, that payment is going to feel like nickels. 

Inflation is also impacting your death benefit. So if you start out with a death benefit, let’s say, to pay for a funeral. The longer you extend that payment period or the longer you live, the value of that death benefit is going to buy less of a funeral. You may not be able to pay for the band or the dinner. Maybe just the burial.

When I first started in financial services back in the mid-eighties, we were selling burial policies for $5,000, meaning you could have paid for a funeral for a little bit less than $5,000 and had some money left over. Today, you can’t touch a burial for anything less than $15,000.

So the point is inflation is always going to be there. It’s always going to be affecting us, sometimes positively, sometimes negatively. But the point is we’re going to have to deal with it. 

The only way to combat inflation on a long-term basis is with proper planning. If you’re ready to start planning for your future, whether it be premium planning or death benefit planning, be sure to schedule your free strategy session today.

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

Maximizing Retirement Benefits Using Life Insurance



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

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

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

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

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

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

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

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

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

So what taxes will they not increase?

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

If you’re interested in making your cash flow and your money, now and in retirement, more efficient, schedule your free strategy session today. Or if you’d like to learn exactly how we put this process to work for our clients, check out our free web course right on the homepage, The Four Steps to Financial Freedom.

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

The Benefits of Owning Multiple Life Insurance Policies

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

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

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

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

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

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

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

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

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

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

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

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

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

If you’re ready to regain control of the finance function in your life and ensure generational wealth for generations to come. Be sure to schedule your free strategy session or check out our web course, The Four Steps to Financial Freedom.

And remember, it’s not how much money you make, it’s how much money you keep that really matters. We’ll see you in the next one.

Compound Interest vs Simple Interest: The Key Differences

Sometimes money concepts could feel complex, especially compound interest versus simple interest, and how they impact your life insurance policies. Interest is a very complex topic, the further you dig into it, the more complex it gets.

Every once in a while, we’ll hear that life insurance policy loans are calculated on a simple interest basis, and that’s not exactly the case. Let’s take a step back and look into the difference between compounded interest and simple interest.

Compound interest is where you calculate interest on your principal balance, plus the interest. Simple interest is interest that is calculated only on the principal balance. 

An example of simple interest would be a $10,000 deposit into a CD and it’s earning 4% interest. If it was calculated on a simple interest basis, you would receive $400 per year for the duration of the CD. Looking at this, we’d have a $10,000 balance, and the interest would only be calculated on that balance. Within those three years, we would only earn 1200 dollars worth of interest.

Now, when you compound interest, you’re earning interest on your principal, plus the interest that you earned. At the end of that three-year period, you actually earn an additional $48 and change because you’ve been earning interest on your interest.

But let’s translate it into how it affects our policy loans and paying back those policy loans, and how interest is calculated over the policy year.

Most life insurance companies calculate the loan interest due in advance. Basically what that means is you will be charged interest at the time of the loan if your policy anniversary date was today and you took a $10,000 loan and the interest rate for borrowing was 5%, your loan balance would be $10,500 because they charge you the interest in advance.

Another caveat with life insurance policy loans is, that as you make loan repayments, those repayments go towards reducing the principal of the loan, not towards the interest being charged on the loan. That’s why in many cases at the end of your policy year, you’ll get a bill for loan interest that may be due whether or not you’ve been paying on that loan all throughout the policy year.

Now you do have the option as to whether or not you want to repay that loan interest. If you don’t, it will accrue onto the loan balance and become part of that principal after your next policy anniversary. If we step back, this makes sense, you are actually in control of the repayment process. The insurance company charges the interest. The decision as to when and how you pay that interest is completely up to you.

Let’s look at an example of what this would look like.

Let’s say you borrowed $1,170 against your policy cash value via the loan provision, and you wanted to pay it back at the rate of $100.16 over 12 months. Assuming 5% interest is charged. A simple way to figure out the loan repayment is to use an amortization calculator.

With this, we’re able to see that we paid back $1,201.92, which is $31.92 of interest over that year. This could be calculated simply through the amortization calculator. However, the insurance company views things through a different lens. You’re working off of an amortization schedule based on $100.16 payable each month. But the insurance company looks at it from the perspective of saying, okay, we’re going to charge you 5% interest on the principal, $1,170, and you’re going to be paying this loan back at the rate of $100.16.

When you make your last payment. The insurance company will refund you any unused interest, meaning when you pay it back, you might pay it back in 11 months and 22 days and they will refund you the eight days of unused interest.

If you’d like to learn exactly how to put your life insurance policy to work for you, your business, or your family, check out our free web course. The Four Steps to Financial Freedom.

And remember, it’s not how much money you make, it’s how much money you keep that really matters. We’ll see you in the next one.

Taking Advantage of Opportunities through Your Whole Life Insurance Policy

You hear us talk all the time about using life insurance cash values to finance the things of life. Recently, we had a client who used her life insurance policy values in order to finance a home purchase.

Whole life insurance policies have something contractually guaranteed called a policy loan provision. And if you’ve been following our strategy for any amount of time, you know that we often recommend that our clients borrow against the equity or the cash value of their life insurance policies to take care of the things of life, whether it’s an emergency or an opportunity.

Recently, this client called us and said, “Hey, we have an opportunity to purchase some real estate. It’s an insider deal, but I need to close in 21 days. I don’t believe I can go and borrow from a bank and close within 21 days.” Because it was an inside deal, a sale from a family member, they didn’t necessarily need the inspection report because they knew the history of the property. Consequently, the client asked, how much do we have in the policies and how much can we borrow? 

Well, fortunately, there was enough equity in the policies that they could borrow against the cash value and make the closing within the 21-day period.

You see, this is a huge benefit and future of whole life insurance policies. You have a contractual guarantee to access the policy loans via the loan provision. And what this means is that it’s an unstructured loan from the insurance company to the policy owner. The policy owner is able to set up their own loan repayment terms.

The insurance company does charge an interest rate that goes to the insurance company, The client gets to decide how much and how often they make loan repayments to that policy loan.

And you see, having access to money when you need it is a huge benefit. And it’s a benefit that you get with cash value life insurance. Most financial frustrations come from not having access to money when you really want or need something. And the fact of the matter is when you have access to cash, opportunities tend to find you.

Here was a great opportunity for one of our clients to buy a piece of real estate that they loved and cherished. Keep it in the family. But more importantly, it was a great deal because they borrowed against the cash value, there were less in closing costs, they didn’t have to pay any bank fees, and consequently, that will all increase their overall rate of return. Not to mention the fact that they have complete control over the loan terms.

You see, with this process, you are in control of the process rather than being controlled by the process. And that’s not a small distinction. Now, the key to utilizing this process is to be an honest banker. If you were to go the traditional route and pay the bank X amount of money for X amount of years, whatever the amortization schedule stated, you want to do the same thing with your policy.

And you may be wondering why. Well, there’s a few reasons.

The first is loan interest. The quicker you pay off that loan balance, the less interest that’s going to be transferred to the insurance company as lost opportunity cost. The second reason you want to pay that loan back as quickly as possible is because you want to be able to be in a position to take advantage of the next opportunity. If you’ve borrowed out all of the equity against your policy, you have less equity available for the next opportunity. It’s a concept called inventory turnover. When you’re in control of your cash, you want to turn it over as quickly as possible. Meaning borrow it, pay it back, borrow it, pay it back. The more you turn it over, the greater the profits. And again, when you have access to capital, opportunities will find you.

With a mutually owned life insurance company, you’re entitled to non-guaranteed dividends. Meaning the profits of the life insurance company that come from, let’s say, policy loan interest, could be credited towards your policy in the form of non-guaranteed dividends but keep this in mind.

Once the dividend is declared by the insurance company, it is guaranteed. And once it’s paid to you, it could never reduce in value. The only non-guaranteed dividends are the ones that haven’t been declared yet.

So let’s take a look at what happened here.

We had a client who had an opportunity to make a great investment, and they had equity or cash value in their life insurance policy that they could access at their discretion. But they needed to close within a very short window, 21 days. Therefore, they borrowed against the cash value of their policy, reduced their closing costs, made the closing, made the investment, and now they’re in the process of paying back that loan. You see, liquidity use and control should not be something that’s taken for granted.

If you’d like to get started with building a cash-value life insurance policy designed for cash accumulation, schedule your free strategy session today. If you’d like to learn more about exactly how this process works, check out our webinar called “The Four Steps to Financial Freedom” which goes into detail about this exact process.

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

Should I Own a Whole Life Policy Individually or Through My Business?

When setting up a life insurance policy designed for cash accumulation, a question that often comes up is, “Should I have my person own the policy or should I have my business on the policy?”

Today we’re going to talk about the pros and cons of each.

Before we get started, let’s address the elephant in the room. Should your premiums be paid with before tax dollars or after tax dollars? Basically, the question of, “Can I run the premiums through my business and take a tax deduction for it?” The answer is a big NO.

You cannot get a tax deduction for paying life insurance and understand why. Life insurance is not an expense. It’s an asset. You can’t expense an asset. And, if you do, you’re paying tax on the harvest instead of the seed.

You see, the premiums are the seed, the small amount that you’re paying today, and the harvest is the life insurance death benefit. And the last thing we want to do is expose several thousands or hundreds of thousands or millions of dollars to taxes in the long run.

You see, one of the great advantages of owning life insurance is you could put in pennies, the premium, and get back dollars, the death benefit. That’s called leverage. And why would you want to counteract that leverage by having the dollars taxed? It doesn’t make sense.

Now that we got that out of the way, the question becomes, should you have the person on the policy or should you have the business on the policy?

The short answer is, either is fine and each situation is different. But, keep this in mind, whether or not your business should own the policy really comes down to what type of business entity are you? Are you a sole proprietorship? Are you an LLC, a partnership, a sub S corporation, or a C Corporation? The answer to that question, what type of business entity do you own, will dictate who should own the policy.

Now, in most cases, having the individual own the policy can accomplish what you want to accomplish when you’re capitalizing a whole life insurance policy for cash accumulation to help capitalize your business. But then again, there’s the question of what’s the purpose of the insurance? Is it for a stock redemption? Where the business is going to redeem a deceased shareholder’s equity in their business, or is it a cross purchase, or is it for key person reasons? There’s a variety of reasons why a business would want to get or own life insurance on one of its employees. 

However, in most cases where the business owner wants to take loans from the policy and infuse that cash into their business using the policy loan provision. Even if the individual owns it, you could just add one extra step and it allows that individual to own and control that cash value rather than the entity.

Another question we often get is, is there any tax benefits to the business owning the policy versus the individual owning the policy? And to that, the answer is no. You see, there are no tax benefits that go to the business, if the business owns the policy. If the business does own the policy and the business is the beneficiary of the policy, that means the death benefit is paid to the business and that goes tax free from the insurance company to the business. But now you got an issue where the death benefit, the dollars, are tied up in the business. There’s only two ways you can get the money out of the business. One is to expense it, meaning pay expenses. And the second is to salary it, to pay somebody’s salary. Either way, they’re taxable events.

And the bigger question often becomes, who should be paying that premium? And to that, we see that often the business account has more cash flow running through it. And as long as the individual is owner of that entity, the business is able to make those premium payments and expense it to the individual.

So basically what that would look like is the business entity is going to pay the insurance company and then the business entity is going to bonus out that premium amount to the individual so it gets taxed. So, ultimately, the business paid the premium and was able to deduct it as salary to the executive or the owner. That’s all kosher from a tax perspective. The individual paid the premium but he didn’t have to write the check, he just paid the tax on the premium.

Now, let’s not forget about the tax benefits of whole life insurance policies in general. Although there are no added benefits for the business by the business owning the policy. There certainly are benefits associated for tax reasons with whole life insurance policy designed for cash accumulation.

First of all, we have tax deferred growth within the policy. After we pay tax on that premium, we’re able to grow that asset in a tax deferred environment. We also have tax favored access to policy loans on a guaranteed basis. We have tax favored benefits in retirement with access to the cash value, and then we have a tax free death benefit paid out to our named beneficiary outside of probate.

On top of all of that, you have additional tax benefits if you’re using the cash value to supplement your retirement income. If it’s done properly, you can avoid state income tax, federal income tax, Social Security offset tax, no increase in your Medicare premium. The death benefits pass outside of probate and in most states pass outside of state inheritance or estate taxes. And the death benefit, again passes tax free to the beneficiary.

If you’d like to learn more on exactly how to use a whole life insurance policy designed for cash accumulation for your individual or business situation, schedule your free strategy session today and download our free business owners guide.

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