life insurance

You always hear us talking about dividend-paying whole life insurance whole life insurance designed for cash value accumulation. But what exactly is dividend-paying whole life insurance? Today we’re going to do a deep dive into that exact topic.

Let’s start with the basics. What is a whole life insurance contract?

A whole life insurance policy includes two fundamental promises from the insurance company. First, they promise to pay a death benefit at any point along the way, as long as the policy is in force. Second, they promise that the policy will have a cash value equal to the death benefit at the policy’s maturity age, typically age 100 or 121.

With this structure, you’re getting perfect compounding. In order for the insurance company to fulfill the second promise cash equal to the face amount at maturity they must put aside more money this year than they did last year, and even more next year than this year. That creates a compounding curve starting from zero and building toward the full face amount. So, you’re already earning interest.

But dividend-paying whole life insurance adds a second layer of earnings: the profits of the insurance company. When you purchase a policy from a mutual insurance company, you participate in those profits. That’s why it’s also called participating whole life insurance. If the company earns a profit, you receive a portion of it in the form of dividends, paid out on your policy’s anniversary date.

With a participating whole life insurance policy, the company essentially charges more than needed for the premium, then returns that excess to you as a dividend. These are tax-favored dividends, meaning they don’t typically show up on your tax return. They’re technically considered a return of overpaid premium.

This tax treatment exists because of the lobbying efforts of the life insurance industry. Way back in the early 1900s, when the tax code was developed, the life insurance lobby pushed Congress to recognize dividends as a return of premium not income. That’s why they maintain this tax-advantaged status today.

To maintain that benefit, it’s important to pay your premiums with after-tax dollars. As long as the money stays within the policy or even if you take the dividends as cash they grow on a tax-favored basis.

That’s the foundation of dividend-paying whole life insurance.

Now, how can those dividends increase?

There are two main ways, one of which is in the control of the policyholder, and the other in the hands of the insurance company.

As a policyholder, you can increase dividends by purchasing paid-up additions a feature often referenced online. This rider allows you to put more money into your policy and buy additional paid-up life insurance. If you’re working with a mutual insurance company that earns a profit, a portion of those profits will be returned to you through additional dividends. Because when you own a policy from a mutual insurer, you are effectively an owner of the company as it relates to your policy. So any profits the company earns are returned to you, tax-favored, via dividends.

The companies we work with have paid dividends for over 120 consecutive years, including through depressions, recessions, world wars, gas crises, and tariffs. Think of all the turbulence of the past century yet these companies have continued to pay.

We work with these longstanding, reputable mutual insurance companies because they have consistently rewarded policyholders and provided access to cash value not just at death, but throughout life.

The second way dividends can increase is based on the insurance company’s profitability. That’s why it’s important to choose a company with not only a long history of paying dividends, but also a strong underwriting process. You don’t want them insuring people indiscriminately. To ensure profitability, reputable companies require an application, medical questions, and often a physical exam. The more selective the company, the more financially stable they are and the more reliable those future dividends will be.

Now let’s talk about what could reduce your dividend: policy loans. Some companies penalize your dividend amount if you have an outstanding loan. This is called direct recognition.

In our opinion, it doesn’t make much sense to penalize someone for using their policy the way it was intended to borrow against cash value. We prefer to work with companies that use non-direct recognition meaning the net cash value is not factored into the dividend calculation. The policy will perform as intended whether or not you have a loan.

With direct recognition, the insurer calculates dividends based on net cash value (cash value minus loan balance). So, if you have no loan, your dividend may be higher. If you do have a loan, it might be lower.

The common argument in favor of direct recognition is that it’s “fair.” For example, if one policyholder has a loan and another doesn’t, some believe the latter should earn a higher dividend. But we challenge that logic.

Imagine this scenario: You have a 4% CD at a bank. Two years into the CD term, you go to the same bank for a car loan. A month later, you see your CD rate has dropped. You call the bank and ask why. They tell you it’s because you now have a car loan. That doesn’t make sense and neither does reducing dividends for having a policy loan, especially since the insurance company is still charging interest on the loan.

Whether it’s direct or non-direct recognition, the insurer is earning interest on the loan. So, there’s no reason to penalize the policyholder. To us, direct recognition feels like a money grab even though mutual insurers eventually redistribute profits. On principle, it doesn’t add up, and we aim to avoid it when possible.

Some companies use direct recognition, and some do not. As a policyholder, you can’t control this after the policy is in force so it’s a decision you want to make before choosing your insurer.

In conclusion, dividend-paying whole life insurance policies are issued by mutually owned insurance companies and offer long-term guarantees plus the opportunity to share in company profits.

If you’d like to learn how to put a specially designed whole life insurance contract to work for your family, your business, and your specific situation, visit our website at www.tier1capital.com and click the “Schedule Your Free Strategy Session” today.

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

When you have a business partner, one of the most important things you can plan for is the death of that business partner. What’s going to happen to the business equity if your partner dies? The solution to that is a buy-sell agreement that defines exactly what will happen. But what many people fail to do is plan for the funding of that obligation and that’s exactly what we’re going to talk about today.

When it comes to setting up a buy-sell agreement, a lot of people don’t realize that they’re setting themselves up for a future obligation: how am I going to buy out my business partner’s equity?

The buy-sell agreement simply directs the surviving partner as to how much they owe and who they owe it to. It creates a financial obligation. What the agreement doesn’t do is set up the funding, and that’s where life insurance becomes essential.

If you have a business that’s worth $2 million and your partner passes away, where are you going to come up with $1 million to buy out their equity immediately?

That’s where life insurance steps in. Think about it: the event that causes the problem the death of a partner can also trigger the solution if you’re using life insurance. The insurance payout goes to the business or surviving partner at the exact moment it’s needed most.

Many business owners believe that the buy-sell agreement is the solution. They sign the paperwork and think they’re set. But if that piece of paper isn’t backed by a solid funding plan, the surviving partner could face serious financial trouble.

Some businesses say, “Well, we have cash reserves. We’ll just use that.” But that can be a huge mistake. You’re tying up a large chunk of capital for an event that may or may not happen soon meanwhile, that money could have been used to grow the business.

If you’re sitting on $1 million in cash reserves, that’s $1 million you’re not investing back into the company. That’s $1 million that’s not generating returns.

With life insurance, on the other hand, you’re paying pennies on the dollar to fund that obligation. You’re freeing up that $1 million to be productive inside your business.

And if you’re using a whole life insurance policy designed for cash value accumulation, you’re building up a private pool of capital along the way. It’s like setting aside money, but better because not only are you growing cash value that can be used during life, you also have the death benefit in place to protect your business when it matters most.

You’re essentially getting one dollar to do multiple jobs. That’s what makes businesses more efficient. That’s what puts you in control.

We always come back to the lens of control. Are you in control, or are you not?

Let’s examine the alternatives to using life insurance for buy-sell funding:

1. Cash Reserves – Ties up capital that could otherwise be used to grow the business.

2. Borrowing from a Bank – Requires paying principal plus interest. You’re repaying $1 million plus more.

3. Paying out of Cash Flow – Redirects operating income, weakening business performance and limiting your ability to reinvest.

All of these options reduce the efficiency and flexibility of your business.

With a properly funded and executed buy-sell agreement using life insurance, you have $1 doing multiple jobs. That same dollar is building a cash value pool you can borrow against while also funding the business succession plan. And best of all, you’re doing all of this with discounted dollars. You’re buying a guaranteed death benefit for pennies on the dollar, which is the definition of wholesale purchasing.

There’s absolutely no downside to that. You’re increasing efficiency, control, and long-term planning all with smart capital leverage.

If you’d like to learn more about how to put this strategy to work for your business and how to properly fund your buy-sell agreement, visit our website at www.tier1capital.com and click the “Schedule Your Free Strategy Session” today.

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

Today we’re going to talk about the logistics of a policy loan. How do you go about requesting a policy loan from your insurance company and repaying it?

Life insurance contracts typically come with a policy loan provision, which is a contractual guarantee that you have access to the money through this loan feature. You’re able to take policy loans against the cash value that has accumulated within your policy. The insurance company will place a lien against that cash value and distribute the loan. In many cases, you’re able to receive that policy loan either through a check or ACH.

The key is that you are not asking for permission or seeking approval. You are literally giving an order because it’s a contractual provision. That puts you in control of the financing function. As long as you have the cash value available within the policy, you’re able to borrow against it. It’s that simple.

There’s a reason for that. The entity that is guaranteeing the loan the insurance company is also the entity that is verifying that you have equity in the policy. They’re in a unique position because they’re holding the loan and they’re also holding the collateral. They know they’re going to get paid. Even if you die, they’ll just reduce your death benefit dollar-for-dollar for the outstanding loan.

In essence, if you die with an outstanding loan, the reality is you took an advance on your death benefit. You actually got to spend some of your death benefit during your lifetime, which is a neat feature. This is certainly unique to whole life policies. So as far as logistics how do you actually go about getting the policy loan? Usually, you’ll call up your agent or your insurance company. You’ll be able to request the loan via a form, likely online, and sometimes even over the phone. Each individual insurance company has its own rules and procedures, but typically they’ll process the loan in about a week, give or take. Once you have the loan, the next question is: how do you pay it back?

The insurance company is not going to send you a coupon booklet or monthly statements. It’s an unstructured loan, which means it’s entirely your decision how, if, and when the loan gets paid back. If you understand what we’re saying here, you’re in complete control of the payback function or the financing function in your life. That’s why people like taking policy loans.

Number one, you’re giving an order, not asking for permission.
Number two, you decide how, if, and when the loan is paid back, including what those terms are.

Now, the insurance company does determine what the interest rate is. But whether or not you pay the interest out of pocket is completely up to you. And that’s where the feature of control really comes into play. We do recommend paying back at least the loan interest, because otherwise it will accrue and compound onto the loan balance. But when it comes to repaying the loan principal, the timing and structure are totally up to you. Let’s say you’re getting a bonus in a few months and you want to pay off your policy loan. You can absolutely do that. Let’s say you want to pay $50, $100, or $200 monthly toward the loan. You can set that up too. Options include setting up an EFT (electronic funds transfer) where the insurance company automatically pulls from your bank account, or you could use bill pay through your bank to send a check to the insurance company. You can also mail a check and write in the memo to apply it toward your policy loan principal.

The cool thing about policy loans is that as you pay down the principal, your available equity inside the policy increases again. So you’ve got two hoses filling up your bucket: your premium payments and your loan repayments. That means you’re continually rebuilding your access to capital.

The key is you are in control of the payback function. But because you are in control, one of the general rules we share with our clients is this: never take a policy loan unless you have a process in mind for how you’re going to pay it back.

Even though there’s no requirement for how or when to repay it, you don’t want to leave the loan outstanding for the life of the policy. That wouldn’t be using the tool as efficiently as possible. It’s not a problem to have an outstanding loan, but it does reduce your access to capital and your policy’s overall effectiveness. For example, some of our clients borrow against their policy to invest in real estate. They flip a project that may take eight months to complete and another two months to close. Some clients will pay interest only during that time. Some won’t make any payments until the project is finished and sold. Then they repay the loan and interest all at once. Others prefer a fixed payment plan. It doesn’t matter. The point is they are in control of how it’s paid back. The bigger point is to treat your money with the same respect that you would treat the bank’s money. If the bank expected you to pay back a loan at a specific rate, do the same with your own policy loan. Respect your money. Don’t abuse it. Use it, and pay it back responsibly. Because you have flexibility, there’s a tendency to say, “Ah, it’s okay. It’s my money.” But precisely because it’s your money, you should treat it even better.

With great power comes great responsibility.

At the end of the day, if you’d like to learn more about how to use policy loans in your specific situation, be sure to check out our website at tieronecapital.com. We’d be happy to talk with you about your exact scenario. Just visit our website at www.tier1capital.com and click the “Schedule Your Free Strategy Session” today.

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

Many people consider Warren Buffett one of the best individual investors of all time. Today we’re going to take a note from Warren and think in decades instead of focusing on the short-term gratification that we’re so used to.

There’s certainly something to learn from Warren Buffett and the way he thinks about using money and earning money. He’s earned the nickname “The Oracle of Omaha,” and it’s well deserved because his track record is impeccable. Now, are there times when his portfolio is down? Absolutely. But the reality is, again, because he thinks long term because he thinks in decades he’s very comfortable owning some of the stocks and companies that he purchased at the prices in which he purchased them. It doesn’t mean he overpaid, even if the value of that stock went down 20 or 30 percent directly after he bought it. When Warren Buffett makes a purchase, he’s very confident that if he holds that position long term, he’ll make the returns that he needs or wants because he’s patient and he thinks long term.

Many believe Warren Buffett’s success is due to that long-term growth mindset, his guaranteed growth strategies, and strategic cash positioning. That mirrors a lot of what we talk about when it comes to purchasing whole life insurance for cash value accumulation. How can we have guaranteed growth, backed by contractual guarantees, and gain access to that capital? With that access comes the ability to use it strategically when opportunities arise.

Warren Buffett likes insurance companies whether they’re property and casualty, life insurance, or reinsurance because they have consistent cash flow coming in. He’s able to deploy that cash flow into areas where he can get a significant rate of return. He’s looking at guaranteed premiums, guaranteed cash flow, and guaranteed cash accumulation. And all of a sudden, he’s able to use the float, so to speak, and deploy that capital in ways that are beneficial to him and his companies.

With a life insurance policy loan, that looks like taking a policy loan to take advantage of an investment opportunity, paying the loan interest, and earning a higher rate of return on that investment. Once that investment performs, you can put the borrowed money back into the policy and still earn a reasonable return. It’s a smart strategy.

You’re using the guaranteed growth of the cash inside the policy and deploying it to create an external rate of return whether in an investment, real estate, your business, or even to pay off debt. Either way, you’re using your money strategically. And what people don’t realize is that in the process, they’re gaining control.

Because with that guaranteed access and guaranteed growth inside the policy, taking a loan doesn’t stop the policy from performing. In most cases, your policy will continue to grow just as if you hadn’t taken a loan. That means you can borrow from the insurance company, use that capital to take care of other priorities paying off debt, buying a property, investing in stocks and at the same time, your policy continues growing. You’re earning an external rate of return while still earning your internal rate of return. That’s a key feature.

We started talking about Warren Buffett and how he’s known as one of the greatest investors of all time, but really, he’s just focused on fundamentals. Blocking and tackling. Simple strategies. The problem is, most people don’t have the discipline. Most people don’t have the long-term thinking that he has. And that creates issues. Also, let’s be honest, Warren Buffett has access to capital. Most people don’t. So the real question becomes: why is that?

One of our specialties is looking at people’s financial position and finding areas where they’re giving up control of their money, and helping them use that money more efficiently. The goal is to put them in a stronger financial position so they have access to cash when opportunity strikes. Because at the end of the day, it’s not about chasing high rates of return. That’s what a lot of people tend to focus on but it can be a losing game depending on timing, markets, and things outside your control. Instead, it’s about having access to capital in any situation whether the economy is booming or in crisis.

That’s especially important as we move into a recession. One of the first things to disappear during a recession is access to capital. So how do you position yourself now to be in control of a pool of money that you can tap into when opportunities present themselves?

That’s the key: having options. The more options you have, the better positioned you are to handle whatever comes your way good, bad, or indifferent.

If you don’t have access to capital, you may not even see the opportunities around you. People know if you don’t have cash, you’re not in a position to act. But when you do have a pool of capital, the opportunities start flowing in.

There’s an old saying: when you have access to capital, opportunities will find you. And they absolutely do.

Let’s talk about how this applies specifically to small businesses. How can small businesses use this strategy to put themselves in a stronger position?

If a business is under financial or cash flow stress, they may be tempted to sell at the wrong time. You have to exit your business one way or another. And the reality is, in most cases, 90 percent of a business owner’s wealth is tied up in the business.

So when they go to monetize or capitalize on that business, they’re often forced to accept a lowball offer. They’re in a desperate position. But having access to capital liquid capital in a policy can prevent a business owner from selling at the wrong time or under bad terms.

Warren Buffett’s rules actually mirror Nelson Nash’s rules in many ways. Think long term. Don’t be afraid to capitalize. Don’t steal the peas. Don’t deal with banks.

In a lot of ways, Buffett is following those same principles.

Long-term thinking. Guaranteed cash. Being in control of the finance function and not being at the mercy of others. That’s what increases your options. And that’s exactly what Nelson taught.

Nelson Nash was trained as a forester. He studied forestry in college. He was trained to think 70 years ahead. He knew he wouldn’t be around to see the full outcome of the decisions he made but he made those decisions anyway, for future generations.

Three months before he passed away, Nelson called me and said, “Look what we created.” The reality is, I didn’t have much to do with it. But then he said, “I was trained as a forester, and a tree can’t grow unless it has fertile soil. You were fertile soil. You took my message and shared it with the world. And for that, I’m thankful.” That moment was powerful. It brought everything full circle.

The bottom line is this: whether you apply the principles of Warren Buffett or Nelson Nash, these foundational ideas long-term thinking, capital control, financial independence will make your life, your business, and your future better, simpler, and more stable.

If you’d like to learn more about how to put these principles to work for you, your family, and your business, visit our website at www.tier1capital.com and click the “Schedule Your Free Strategy Session” today.

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

When it comes to using our money, a lot of times it’s not something we consciously think about. It’s just something we’ve been taught “This is the way you do it.” Interest is bad. Pay off the debt as soon as possible. But that’s not always the case, especially when you start thinking about things through the lens of control.

How can you be in more control of your money, your cash flow, your finances and how do you experience the freedom that comes with that control?

Today, we’re going to talk about how to put yourself, your family, and your business in greater control of your finances. So you’re not on autopilot. So you’re not just doing things because “that’s how they’ve always been done.” Instead, you’re able to make a conscious decision to put yourself in a better position going forward.

We see this pretty much every day people trying to get out of debt as quickly as possible, paying it off on a short amortization schedule, even throwing extra payments at it to save a few bucks on interest. But today, we’re going to talk about why that’s not necessarily always a good thing and how to position yourself better going forward.

What people see is: “I’m paying less interest.”
But what they feel is: “I don’t have any money. I’m working so hard. All I need is more revenue, more sales, more business… How do I do that so I can finally feel some cash flow relief?”

What we’ve found is that more sales is not the solution to the problem. Instead, the real solution is looking at how you’re using your money on a monthly and daily basis and breaking that down in a way that puts you in control.

We bring a unique perspective: viewing every financial decision through the lens of control. What we’ve found is that when people shift to this mindset, they begin making better decisions with greater clarity.

It’s simple:
If I do this, will it put me or my business in greater control of our money and cash flow?
If the answer is no, don’t do it.
If the answer is yes, go for it.
It seems simple, but it’s often hard to implement because we’re fighting against financial habits that have been ingrained for generations.

Especially when those habits are passed down, right? If your dad or grandfather did things a certain way, and you respect them, you assume that’s the right way. But that doesn’t always mean it’s the right way for you or for your situation today.

A lot of people are feeling that pinch, especially as we head into a recession. The economy is tightening, and these financial habits are going to be tested. It’s becoming increasingly important to look at your money decisions through a different lens to take control, and make financial choices that give you more freedom and flexibility on a monthly basis.

It reminds me of a story. There’s an old tale about a young woman who was recently married and hosting Easter dinner. While preparing a ham, she cut off both ends before putting it in the oven just like her mother always did. Curious, she asked her mom, “Why do we cut the ends off the ham?” Her mom replied, “I don’t know, that’s how my mom did it.”

Grandma happened to be there, so she asked her, and Grandma replied, “Well, back in my day, my oven was too small to fit the whole ham. So I had to cut the ends off.”

The point is many of us do things out of habit, without realizing the context in which those decisions were originally made no longer applies.

If you’re a successful business owner today, your financial circumstances might be very different from those of your parents. But your kids are watching you now. You have the opportunity to pause and reflect: “Is this the way things actually should be done or is it just the way things have always been done?”

Again, viewing decisions through the lens of control changes everything. It’s been a game-changer for our clients. Every decision now has a purpose. You’re no longer unknowingly or unnecessarily transferring away wealth and cash flow. You’re keeping it where it belongs with you.

Recently, we met with a business owner in his 60s. His children now in their 40s work in the business too. They’re doing very well, bringing in about $7 million in annual revenue. But they feel cash-flow poor.

Why? Because they’re trying to pay off all their debt as quickly as possible. That’s what the first generation did, and it’s what the second generation learned. It feels like the right thing to do avoid interest at all costs. But let’s talk about the symptoms that come from this mindset.

First, the cash flow pinch. Every month they’re racing to meet payment deadlines. That creates downstream pressure on the sales team to close deals faster. Installers feel pressure to cut corners to increase profit margins. Everyone is rushing so they can get paid faster and avoid interest charges.

But every splash creates a ripple. And those ripples are creating even more stress and financial strain.

As a business owner, this is incredibly stressful. You have so many responsibilities to your staff, to your customers, to your family. One financial decision is affecting all of these people. So the question becomes: how do we put you in a stronger position where you have access to capital and flexibility?

We see this all the time whether it’s a family or a business. People think, “If I just had more money, I’d feel better.” If I got that raise, that bonus, that one big sale… I’d be fine.

But more money isn’t the solution. You likely already have enough flow coming in. The real issue is: where is that money flowing and how?

It’s like you’re trying to fill a bucket with water, but the bucket has holes in it. Until you plug the leaks, it doesn’t matter how much more water you pour in. The first step is honest introspection. Have I been a diligent steward of my cash flow? Have I been making intentional, efficient decisions?

Once you plug those leaks, your bucket will begin to fill even if it’s just a slow trickle. You don’t need a tidal wave of cash. You just need a steady stream flowing into a system that keeps it there.

You’re creating undue stress by constantly saying, “We need more sales.” But if you’re losing money through inefficiencies, those sales won’t fix your problem. They’ll just accelerate the drain.

Just because you’ve done things one way in the past and it’s gotten you this far doesn’t mean it’s the best path forward. Especially in today’s economy. As recession pressures mount, it’s more important than ever to build a private pool of cash a reserve you can tap into when needed.

That pool of cash can be used to buy discounted inventory, cover payroll, or seize opportunities. But you can’t build that reserve if you keep making the same financial decisions that take you out of control of your money.

If you’d like to learn more about how to put your business in a stronger financial position especially as we head into uncertain economic conditions check out our website at www.tier1capital.com and click the “Schedule Your Free Strategy Session” today. We’ll talk specifically about your unique situation and how to make it stronger for generations to come.

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

There’s no doubt that having an emergency fund is a good thing, especially as a small business owner. Today, we’re going to talk about how to build an emergency fund outside of the bank to put you in more control of your finances as times get tough.

According to a study by Intuit, 61% of small business owners suffer from either chronic or cyclical cash flow issues. And here’s the key what we’ve found working with small business owners for over 40 years is that all of these cash flow issues are self-inflicted. They emanate from how we’ve been trained to use our money. And the key here is, we have a process where we can show you how to reverse the flow of your cash. That is, you’ve been trained to have that cash flow move away from you now we just reverse the flow so the energy is flowing back to you.

And the best part about this condition being self-inflicted is that you are the one making the decisions that led you down one path. And by changing how you’re using your money, you’re able to lead yourself down another path, a path that gives you more access to capital so you’re not at the mercy of the bank anymore. Not only does it give you access to capital, it gives you independence from the bank. It also gives you the freedom to be in control of the repayment process because you’re borrowing against your own reserves rather than asking permission and getting approval from somebody else to tap into their reserves.

So using these whole life insurance policies designed for cash value accumulation is really taking a step to build up a private pool of capital that you have full liquidity, use, and control over that you’re able to use to self-finance in your business. So now, instead of making payments to the bank, you’re making payments to the insurance company and rebuilding that access to capital as time goes on.

That’s such a strong point because again, as you’re paying down your loan, you’re also simultaneously increasing your equity. So you really continue to keep this process and this momentum growing. The financial energy is incredible. And now that puts you at a distinct advantage against your competitors, against your peers and it also positions you for growth to be able to take advantage of opportunities.

And you know, there are a few things a business owner could use that capital for that I can think of. First, we have the emergency fund. If cash flow becomes tight and we need to cover monthly expenses, we could certainly tap into that cash value. Second, we have the ability to use that cash value to self-finance purchases. Whether it’s inventory you’re able to buy it at a discount or a large piece of equipment, you can tap into a life insurance policy loan. You’ll have much more control over, number one, whether you’re able to access the money, and number two, the repayment schedule that goes along with it. Third, if you want to expand your business maybe open a new location you’re able to use the life insurance policy loan to take advantage of those opportunities.

You know, all we’ve discussed so far in this blog post are the practical applications of the cash value. But you also have to realize the death benefit is important. Whether you purchase the policy for succession planning, exit planning, or key person retention planning, you’re now getting one dollar doing multiple duties. And that’s the way you beat recessions and inflation you get one dollar to perform multiple duties.

Let’s take a step way back here. Because when we talk about whole life insurance, people think about premiums. How would a business owner start funding a whole life insurance policy especially if they are cash flow pinched, don’t have access to capital on a monthly basis, and feel like they need that money to get out of their current situation?

That takes what Nelson Nash taught me: honest introspection. You have to really take a look at how you’re using your money. Because we’ve been trained to transfer control of our money and our cash flow unknowingly and unnecessarily. Those are the two key words: “unknowingly” means we don’t even realize it’s happening. We think it’s moving us forward, but it’s actually holding us back. “Unnecessarily” means you could stop doing it. And when you look at things with honest introspection, you’re able to discern whether or not it’s actually moving you forward. And if it isn’t, and you’re not in control, all of a sudden if you just stop those strategies or uses of money, now you’re in control. And that’s the key.

One of the things we’ve been trained to look at when evaluating how we use our money is interest rates. We’re trained to think, “How much is it going to cost me in interest?” and “How can I pay less interest?” And the thought becomes, “I don’t want to give up control of that money. I want to pay it off as soon as possible.” But a lot of times, by taking that step for example, putting $1,000 extra on a loan to save on long-term interest what you’re actually doing is giving up control of that $1,000 today. And that leaves you feeling pinched. So it doesn’t necessarily matter that you’re saving a few bucks on interest if it’s not giving you a feeling of financial freedom. The better question is: how could we use that $1,000 to move us forward today, meet current needs, and set up the business for a stronger future?

Ultimately, the bottom line is you have to be in control. Because if you’re not in control, somebody else is. Right?

So when you give that $1,000 to the bank, you no longer have liquidity, use, and control over that money the bank does. And if you want to get your hands on it, you have to go back and ask for permission. That’s not a great position to be in when you’re striving for financial freedom.

It’s funny, a lot of times when we’re sitting down with business owners talking about funding their succession, exit, or key person retention plan, they’ll say, “Well, we don’t have the cash flow for it.” I always tell them, “You probably do. But you have to make some changes in how you’re using your money.” And sometimes people take exception to that. We don’t mean it critically. We literally mean you’ve just been trained to use your money a certain way. If you unlearn those bad habits, all of a sudden, you can be in control.

What we’re really doing at the end of the day is moving money from one pocket to the next. Instead of giving that money to the bank, we’re just putting the money into a life insurance policy to build up a private reserve a pool of capital that you own and control, that you’re able to access to take advantage of opportunities, to move your business forward, and to get yourself out of a cash flow pinch instead of trying to save a couple of bucks on interest. So at the end of the day, the choice is simple: do you want to get out of debt as soon as possible and be cash poor, or do you want to build an emergency fund that you have full liquidity, use, and control over?

At the end of the day, there are only a few places where you can store that emergency fund.

You know, there are a lot of similarities between banks and insurance companies. Think about it—they’re both financial intermediaries. They take our money, invest it for profit, and stand in the middle guaranteeing us against loss. Both banks and insurance companies are insured by some form of government program. Banks are insured by the FDIC. Insurance companies are not but they are insured by each state’s insurance guarantee fund. For example, the FDIC insures your bank account up to $250,000. Here in Pennsylvania, the state guarantee fund insures your insurance account up to $250,000.

So there are a lot of similarities between banks and insurance companies. But there’s one key difference: how they’re allowed to reserve money. A bank is set up on a fractional reserve system, which means for the bank to guarantee your deposited dollar, they only have to set aside about 10 cents. Insurance companies operate on a 100% reserve requirement. That means if you have a dollar with the insurance company, they can only loan out that same dollar they can’t multiply it like a bank does. That makes your money much safer with an insurance company than a bank, because of how they’re regulated to reserve your funds.

If you’d like to learn more about how to build an emergency fund using a whole life policy designed for cash value accumulation that could also serve other benefits for your business, check out our website at www.tier1capital.com and click the “Schedule Your Free Strategy Session” today.

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

When it comes to owning a family business, there’s no official job description. But there is a lot of responsibility. You’re providing for your family and not only that, but also for your employees. Especially now, it’s important to think about how to recession-proof your business and how you could utilize whole life insurance to do so. Whether you have an existing whole life insurance policy from 20 or 30 years ago that’s been accumulating cash value, or you’re considering how you could use whole life insurance in your business now and moving forward, there are a few key components that make it perfect for setting up your small family business to weather a recession. Today, we’re going to talk about how to set yourself up to recession-proof your business using a whole life insurance policy.

When it comes to owning a small business, there’s no formal job description that comes with the title but there is a lot of responsibility, especially in times of economic hardship. Lately, people are throwing around the word “recession” more and more. So you might be wondering, “How do I set my business up so that I can take advantage of opportunities and not be pinched when the economy is down?” According to a U.S. Bank study, 82% of all business failures are due to poor cash flow management. That makes sense, because as we always say: It’s not what you buy it’s how you pay for it that will impact your business.

The reality is, we’ve been trained by banks, large corporations, vendors, and even the government to use our money in ways that are detrimental to us but beneficial to them. If we could unlearn that process and relearn a system that puts us in control and redirects the flow of money back to us instead of away from us, we suddenly have an unfair advantage over our competition and our peers.

Many people see whole life insurance as an expense or a bill a way of using money that leaves them out of control. But in reality, the way we design these policies is for cash value accumulation. That holds true for older policies, too those from 20 or 30 years ago still have guaranteed cash value growth. You can tap into that growth on a guaranteed basis. Whole life policies also have a guaranteed loan provision, and in many cases, dividends that accumulate over time.

With all of these benefits, whole life insurance allows you to recession-proof your business because you can access that money without questions, without credit checks, and without a required repayment schedule.

Here’s the key question: What’s the first thing to dry up in a recession? Simple, access to capital. The first thing banks do is tighten up lending. In 2008, during the financial crisis, banks froze credit lines whether it was a home equity line or a business line. They simply said, “You can’t tap into it anymore.” Then, they often changed repayment terms, requiring principal and interest instead of interest-only payments, forcing borrowers to scramble for new banking relationships.

Knowing this happens, doesn’t it make sense to set up your own pool of capital that you can tap into at any time, for any reason, without permission? Your right to a policy loan is a contractual guarantee. You aren’t seeking approval you’re giving instructions to access your money when you want it. That puts you in control. That’s what we advocate: keeping our clients in control of their money and cash flow at all times.

The beauty of policy loans is that you’re not actually borrowing from your policy you’re borrowing against it. Your accumulated cash value remains in the policy, still growing, while the insurance company issues you a collateralized loan against it. Your pool of capital continues to earn guaranteed growth and dividends as if you hadn’t touched it. And as you repay the loan, your available borrowing power increases dollar for dollar.

For example, if you make a $500 payment toward your policy loan, your loan balance decreases by $500, and your available equity increases by $500. If you wanted to, you could call the insurance company the very next day and request that same $500 back. They’d simply ask how you want it mailed as a check or sent via ACH to your account.

Compare that to a mortgage or bank loan. If you make extra payments to a bank, you can’t just take the money back. You’d have to reapply, face credit checks, and possibly be denied. That’s the huge advantage of a policy loan especially during uncertain times. With a bank line of credit, you may have access to funds today, but tomorrow they could decide to freeze it. With a policy loan, the terms don’t change just because the economy does.

And here’s the kicker you can be the bank’s best customer: never late on a payment, always in good standing. But if the economy shifts or the bank perceives new risks, they can still reduce or cancel your access to credit. That’s why you need to be prepared for both good times and bad. As the saying goes: A banker will sell you an umbrella when it’s sunny, and take it back when it starts to rain.

We’ve seen it happen time and time again. With whole life insurance, you keep the umbrella.

If you’d like to learn more about putting this concept to work for your life, your business, and your family, visit our website www.tier1capital.com and click the “Schedule Your Free Strategy Session” today.

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

When it comes to life insurance policies, especially whole life, there are a lot of details to understand especially when it comes to policy loans. This isn’t something most people deal with every day, so naturally, it raises a lot of questions. One common question is about how interest is charged on policy loans: specifically, whether the insurance company charges interest in arrears or in advance.

Interest in arrears means the interest on your loan accrues over time and is paid at the end of the period just like how a bank typically charges interest on a mortgage. In most cases, if you take out a policy loan, you’ll receive a bill for the accumulated interest at the end of the policy year. For example, if you borrow $10,000 in the middle of the year, the insurance company will charge you interest on that balance for six months. At the end of that time, you’ll be billed for the interest let’s say at 5% annually, that would amount to $275 for six months.

This is simple interest, meaning it’s calculated straightforwardly based on the loan balance and duration. Over a full year at 5%, you’d pay $500. Over half a year, you’d owe $250 pretty straightforward.

On the other hand, some companies charge interest in advance. That means the full interest is added to your loan at the time the loan is taken. If you took the same $10,000 loan at 5% interest for six months, the company would charge $250 in interest up front. So your loan balance from day one becomes $10,250, even though you’re technically borrowing $10,000.

In the end, the total interest paid is the same either way. Whether it’s charged upfront or at the end of the year, it’s just a matter of when the interest is assessed not how much. So this common question about interest in arrears vs. advance is really a non-issue. It’s just a difference in billing timing, not in financial impact.

But what happens if you repay the loan early? Say you took the $10,000 loan and paid it off in just three months instead of six. In the case of advance interest, you’d be refunded half of what you paid upfront roughly $125 in this example since you didn’t keep the loan for the full period. So yes, even with interest in advance, early repayment can reduce the total cost.

This is often just a minor confusion people run into when searching online, but it doesn’t really affect how you use your policy loan. These are contractual guarantees, and the interest is simple and often fixed for the policy year. It’s a reliable, transparent structure, regardless of how the interest is charged.

Here’s the most important part: policy loans are unstructured loans. That means you, the policyholder, have control over how and when you pay them back. You decide whether to pay just the interest, pay down the principal, or do nothing at all so long as there’s enough cash value to cover the accumulating charges.

Of course, we always recommend paying back the interest to avoid it compounding and eating into your policy’s cash value. But if you’re in a cash flow crunch, you’re not required to pay immediately. You retain flexibility, and that’s one of the greatest benefits of using a whole life insurance policy as a financial tool.

So again, whether your interest is charged in arrears or in advance, it’s not something to stress about. What matters most is that you’re in control of your repayment schedule. That flexibility allows you to adapt based on your financial situation whether you’re flush with cash or experiencing a temporary crunch. And in times of economic uncertainty or personal financial pressure, access to liquid capital like this can make all the difference.

If you’re exploring policy loans, that’s a sign you’re thinking proactively about cash flow. And that’s a great move.

If you’d like to learn more about how to use policy loans to benefit your family, your business, or your personal situation, visit our website www.tier1capital.com and click the “Schedule Your Free Strategy Session” today. We’ll review your situation and help you understand exactly how policy loans can fit into your financial plan.

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

Do you realize that life insurance contracts are unilateral contracts? This means that we, as the policy owners, have only one obligation, paying the premium, while all of the other obligations lie with the insurance company. But what happens if you can’t pay your insurance premium? What are your options?

When it comes to life insurance contracts, especially whole life insurance policies, you’re entering a long-term commitment. It’s a contract between you and the insurance company, where you agree to pay the premium. But life doesn’t always go as planned. What if cash flow is tight? What if you don’t have access to the money? As a policy owner, what can you do to keep the policy in force?

This question comes up a lot, especially when people are considering purchasing a policy. And when you do find yourself in a cash flow pinch, the key becomes how much equity or cash value you have in the policy. For a term policy, you don’t have any equity. If the premium isn’t paid on its due date whether that’s monthly, quarterly, semi-annually, or annually you may have the flexibility to change the payment frequency to suit your cash flow better. But if you don’t pay it within the grace period, usually 30 or 60 days, the policy will lapse and you’ll lose your coverage.

That loss can be a big issue for your family. But with permanent life insurance like whole life, there’s a very different dynamic. The question becomes: how much equity have you built up in the policy? In the early years, there’s usually very little equity. However, when structured properly especially with the use of paid-up additions riders you can build significant equity in the early years. This can provide you with the option to borrow against the policy’s cash value to pay your premiums going forward, or at least cover a portion of them.

The key is having that option available. If you have a standard whole life policy with no additional funding beyond the base premium, it will still accumulate cash value each year. So, in the later years let’s say year four, five, or six you should have built up enough equity to cover one, two, or even three years of premiums if needed. That can absolutely be a lifesaver if you’re facing a temporary cash crunch.

We had a client who was 67 years old when we met him. His father had purchased a policy on him when he was 13, but tragically, his father passed away when the client was 16. Only three years of premiums had been paid on the policy. Decades later, the client contacted us because he was still receiving premium notifications and wasn’t sure if the policy was still active. He sent over the documents, and it turned out the policy was indeed still in force. We helped him obtain an in-force ledger to understand the current status. Sure enough, there was a $7,500 loan against the policy, but he was in a good financial position and chose to repay it.

The policy his father had bought was a “life paid up at 65” plan. By repaying the loan, the client restored the policy to its fully paid-up status. Originally, the death benefit had been $5,000, but it had grown to $12,000. On top of that, the policy continued to earn dividends and interest, meaning both the cash value and death benefit would keep growing. All in all, his father had paid premiums for just three years, and the client ended up with a strong, active policy decades later thanks to the built-in safety net of whole life insurance.

Most people in these situations don’t want their policies to lapse. They reach out because they’re trying to find a way to maintain their coverage. One option is to take a policy loan, provided there is equity available. Another option is to surrender dividends or some portion of the cash value to cover the premium. That choice has more of a long-term impact, though. When you take a policy loan, it reduces the available cash value and death benefit dollar for dollar. But when you surrender dividends, it reduces not just the cash value and death benefit, but also impacts future growth, since you’re no longer earning dividends on those surrendered dividends.

Another possibility is to reduce the policy. For instance, if you’re in a long-term cash flow crunch and can only afford half the original premium, you might be able to lower the face value of the policy and pay a smaller premium based on that reduced death benefit. The key here is that you have options, and the insurance company has built in safeguards to help you avoid losing coverage due to situations beyond your control.

One more option is what’s called a “reduced paid-up” policy. Let’s say you’ve had your policy for 30 years and accumulated a healthy amount of cash value. You want to retire and stop paying premiums. While not always recommended, you do have the choice to convert your policy to a reduced paid-up policy. This freezes the current cash value and uses it to purchase a smaller, fully paid-up policy. You’ll never pay premiums again, and the policy will continue to grow, just on a smaller scale. It’s kind of like a limited-pay policy—you start with the intention to pay over a certain period, but cut that period short when you hit your desired milestone.

With a reduced paid-up policy, you may go from a $500,000 death benefit to a $300,000 benefit, but you eliminate the need for future premiums. Many people like this option in retirement, especially if they’re living on a fixed income. It doesn’t trigger any taxable events, and you continue earning dividends and interest on the new, smaller policy.

Finally, there’s the option to surrender the policy altogether. If you decide not to keep the policy, you can surrender it and receive the accumulated cash value. You’ll get your premiums back on a tax-free basis, and anything above that amount will be taxable as income in the year of surrender. If you’re struggling to afford premiums, your best move is to contact your insurance agent or company to review the specific options available for your policy.

Don’t wait until a cash flow crisis catches you off guard. Visit our website www.tier1capital.com and click the “Schedule Your Free Strategy Session” today. We’d be happy to chat with you about your specific situation.

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

You’re planning on exiting your business. How do you go about doing that? Well, it starts with finding an advisor who’s experienced. You only get to leave your business one time. You don’t want to mess it up. Today, we’re going to talk about the critical questions that need to be asked when you’re planning your exit strategy so you can find the right advisor for your situation.

There are so many financial advisors out there, and not all of them are the same. If they were, we’d all be doing the same job in the same exact way, there’d be no deviation, we’d all be earning the same returns and using the same strategies. So when it comes to picking an advisor who’s right for you, it really comes down to a few critical questions that need to be asked.

The first question you need to ask is: does the advisor specialize in exit planning? Most advisors are only concerned about managing your assets. They want to provide investment advice on the assets that you’ve already accumulated. And it’s a totally different skill set for the exit strategy. It’s about making sure that the business is in a position where it’s able to be sold and sold for the highest price. Your blood, sweat, and tears went into this business for however many years building it so it could provide for you, your family, and your community. But when it’s time to step back, how do you make sure you’re able to recoup your investment for the most amount possible?

The key is preparing you for that ultimate day when you’re going to walk away from your business. Most business owners—80 to 90 percent—have their wealth tied up in their business. And when they leave the business, they are typically only getting 24 cents on the dollar for the value of their business. Clearly, something needs to change in that dynamic because you’re setting yourself up to be in a situation where you may not be able to get the most out of the value of the business from what you’ve done over the years.

It all comes down to proper planning. You only get to do this one time. You only get one shot in most cases, unless you’re a serial entrepreneur, to leave your business and to get the most out of it as possible. You want to have someone on your team who’s experienced with this type of situation and who’s able to help you navigate these waters.

We had a situation where a client of ours had been planning with us for 32 years for the exit he was hoping to have somewhere down the road. Thirty-two years ago, he had no idea what that would look like, but every year he put money away, and we prepared him for that exit. Over the past five years of his business career, he was getting offers to buy his business. And those offers were lowball offers. He was in a position where he could reject those offers because his financial wellbeing in retirement was never going to be predicated on selling the business.

It all comes down to having money. And when you have that money, you have options. When you don’t have money, you could be scrambling for it. You want to get out of the business, you want to retire, and there’s only one way to do it and that’s to take an offer that someone’s giving you. But when you have money, you’re able to negotiate better.

Being prepared really puts you in a position where you don’t have to jump at the first offer. And by the way, the offer he got was incredible. It was over 50 percent more than the best offer he had received previously. He had the patience to wait it out for the market to be just right. That put him and his family in a very good position financially for retirement.

The second question you should be asking is: can the advisor show you ways to improve your cash flow so that you can find additional money within your cash flow to direct toward the exit plan? Think about the dynamics of that. There’s money within your cash flow that might be being utilized inefficiently, and if we can redirect that cash flow to fund your exit plan, it doesn’t have to come out of your current expenses.

The first step is to have that awareness that, “Hey, I’m going to want to exit my business one day,” but that doesn’t necessarily solve the problem. Awareness of the problem isn’t going to give you the solution to the problem. In fact, it may impose another problem and that’s that you don’t have the money to fund the solution. That’s the case in most people’s situations. But having an advisor who is able to step back and look at your position from a different perspective, perhaps through the perspective of control and getting your money to do multiple duties so a dollar that was only performing one job is now able to do that job plus fund that succession or exit plan is going to be a good thing. You’re going to be able to achieve two goals with one dollar.

We had a situation where a client wanted to do his exit plan. He was 64 years old and hadn’t done any planning previously. When we told him that it was going to cost about $20,000 to $25,000 per month to set up this exit strategy, he said, “I can’t do that.” I told him, “I’ve already looked at your financials. You have over $20,000 of recurring revenue that is being utilized inefficiently. If I can show you those areas and prove to you that they’re being used inefficiently, would you put that money toward your exit plan?” He said absolutely. And that’s exactly what we did. We found about $22,000 per month of recurring revenue that was being used inefficiently. It was things like debt, inefficient planning, and taxes. We designed a plan to redirect that money to create his exit strategy, while still addressing all the issues that the money was previously being used for. The key is we were creative enough to find the money within their current cash flow to fund their exit strategy.

The answer isn’t always as simple as reducing overhead or increasing revenue. There are other ways to look for inefficiencies within a business’s cash flow that can be used to achieve a huge goal like an exit planning strategy.

The next question you should be asking your advisor is: what is their position on debt? Seventy percent of small businesses have some form of debt. Not being well-versed in debt strategies could really hinder your ability to set up an exit strategy. There’s good debt and bad debt. What we try to do is analyze your debt situation and maximize the efficiency of your debt service. That’s another way you can improve the efficiency of your money and your cash flow.

Most business owners don’t want the burden of debt on their shoulders, so they pay as much as possible and direct as much revenue and cash flow as possible toward that debt. But what that might be doing is actually holding you back. By putting all of your money in one bucket, you no longer have anything left to fund the things that really matter and the things that are leaving you exposed long term.

The next question you should be asking is: what is the advisor’s attitude on risk? Specifically, are they recommending strategies for your exit that increase the amount of risk you’re taking? I don’t know about you, but when I’m doing planning, I want a plan from A to B that’s going to work no matter what. Because otherwise, what’s the point of doing a plan? I don’t want to risk my way to a possible reward. I want to make sure that, especially with something as precious as a business, I’m able to achieve the goal I’m working so hard to reach.

We have found that there are a lot of advisors in the exit strategy space who recommend strategies that increase your risk. These strategies are often predicated on financing to set up your exit. If you’re taking on additional debt to fund your exit, that’s not always the best case scenario. Others are recommending products that pass risk back to you, and that’s not a good situation. We’ve seen those situations and called attention to them, whether it’s a strategy or a product or both, that are adding additional risk to your situation risk you may not even be aware you’re taking on.

It all comes down to awareness, knowing what you’re doing, and making sure your advisor is aware of what you want and how you want to achieve your goal of exiting the business. If you’d like to learn more about how to put these strategies to work for you and if we’re the right fit for your business exit strategy visit our website www.tier1capital.com and click the “Schedule Your Free Strategy Session” today. We’d be happy to chat with you about your specific situation.

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