Whole Life Insurance

Is Whole Life Insurance a Good Investment?: Internal Vs. External Rate of Return

You often hear that whole life insurance is a lousy investment and that’s kind of true in the sense that life insurance isn’t an investment. Investments inherently have risk and that’s not the case with the whole life insurance policy.

With the whole life insurance policy designed for cash accumulation, you could expect to earn anywhere between 3% and 5% over your lifetime – but understand that’s not how the policy starts off.

Starting a new life insurance policy is kind of like starting a business. If you were to start a business today, you wouldn’t expect to become profitable in the first year, the second year or even the third year – but usually from the fourth year, that business will become profitable and hopefully will continue to grow year over year. The same holds true with a whole life insurance policy designed for cash accumulation. In the first year, you might have access to 40% of what you pay in premium. In the second year, it might be 60% or 65%. In the third year, 90% or 95%. But from the fourth year on, you should be generating a profit year over year in that policy and it will only get better from that point forward because of the way the policy is designed.

Basically, for each dollar you pay in premium from the fourth year on, you could expect your cash value to increase by more than one dollar. As mentioned, life insurance isn’t an investment because there is no risk. Once that money is credited to your cash value, that value will never go down.

On a cumulative basis, we would expect the break-even point to be somewhere between year seven and year ten. For example, if you paid a hundred thousand dollars in premiums over 10 years, you would expect your cash value to be a hundred thousand dollars in those 10 years and maybe a little higher. After that, the cash value and the accumulation value will continue to grow year after year.

The key here is that the so-called financial experts will judge life insurance on those first 10 years and say it’s a lousy investment. But what they’re completely ignoring is the fact that you could still access that money through the loan option or the loan feature in the policy. Taking advantage of the loan provision can allow you to not only generate that internal rate of return, but to generate an external rate of return on your money. This can allow you to make all of your other savings and investments much more efficient. Keep this in mind: You have the internal rate of return – that isn’t going to be interrupted by accessing that cash using policy loans PLUS you’re able to put that money to work for you somewhere else and make an external rate of return on an actual investment. Once you make the money on your investment, you can cash out and repay your policy loan and realize your profit.

Can I use my policy in the early years – before the break-even point?

A lot of times people come to us with credit card debt and they’re paying a very high interest rate which is taking up a lot of their monthly cash flow. An example of how you could use your policy is to repay that credit card debt using a policy loan and then rebuild and replenish your cash values so that it is accessible again in the future. Basically, you could take a loan  against your life insurance cash, pay that credit card off and then redirect the payments from your credit card to repay the policy loan until the loan is paid off. Not only do we have a lower interest rate, we also have control over that payment amount every month. If you run into cash problems, you could back off on that payment. But if you are cash flush, you could pay that debt off faster and you’re actually building an asset for yourself.

Another way that you could access that money either in the early stages of your policy or the late stages is to borrow against your cash value to make an investment whether that’s into stocks and bonds, crypto currency, gold, silver or real estate.

 

The key is using the cash value in your life insurance policy to make your other money substantially more efficient.

 

Only in a whole life insurance policy, you can have access to the cash values without draining the tank. Basically you’re able to continuously earn compound interest and access that money to make an investment that will potentially earn you a higher rate of return. You have the policy earning the 3% to 5% over your lifetime at the same time you also have the ability to earn a higher rate of return on investments like stocks or real estate. Whether it’s to make an investment or to pay off debt, the bottom line is that you’re making your money more efficient. Your money is working in more than one place at once. That makes your money more efficient and ultimately puts you in a stronger financial position.

What about getting a margin loan or borrowing against the equity of my real estate?

It is possible to access money from other sources like a home equity loan or a margin loan on your investment portfolio. However, whole life insurance is the only financial tool that allows you to access money and know for sure that you’re going to have a greater account value at the end of the year than you did in the previous year  – when you take a loan against your life insurance cash value, the compounding of interest is never interrupted. Your policy continues to perform as if you had not accessed any money.

With a margin loan, the underlying investments might decline and you may have a margin call – once again putting further squeeze on your cash.

In real estate, the value of your real estate could appreciate or it could also depreciate, it depends on the market conditions. Also, with a real estate loan, you have a structured repayment versus with a policy loan where you can determine the payment terms in the sense that if you want to put $50 a month on the policy loan, you could do that. If you want to put $300 a month on the policy loan, you could do that. If you don’t want to put anything on the policy loan, you could do that as well. There’s no one telling you what the repayment schedule is.

Here’s another thing to consider. What if you just drain your savings to make the investment? What’s the difference there?

We had this situation with a client who started a policy. They had about $5,000 of cash in the policy. They coincidentally have a $3,500 credit card bill that’s due and they wanted to pay off the credit card. The husband wanted to borrow against the policy because he sort of understood the concept of leveraging life insurance and the power of using this method. The wife was a little hesitant and wanted to use money from their savings account instead of a policy loan. They had $20,000 in savings and she said, “Well, let’s just take $3,500 from the savings, drain down the tank. Then we could leave the money in the policy to use for our home improvements.” What they’re missing is the fact that before that transaction, they have access to $20,000 that they own and control. If they drain down the tank to the tune of $3,500, they don’t control $20,000. They only control $16,500 and they’re still earning the interest in the policy because they didn’t access the money. But if they don’t take the money out from the savings and they borrow against the policy, they will still control $20,000 and they will still earn interest on the $5,000 – even though they accessed $3,500 against the policy. That’s what we call opportunity cost. We don’t only consider the money that we’re using – we also consider what that money could have earned us had we invested that money.

Whether it’s to pay off debt or pay a lower interest rate against the policy versus credit cards or whether it’s to make an external investment by accessing the cash value in your life insurance. Life insurance could allow you to generate that external rate of return on investment opportunities and still guarantee that you’ll get the internal rate of return on your cash value that you have accumulated in the policy.

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

If you like this post, don’t forget to leave us comments down below on what you think about this topic.

Want to learn more about this topic, check out our free web course to see how our process works. If you are ready to talk, feel free to schedule a free strategy session today to get started.

The “Guaranteed 4% Interest Rate” on a Whole Life Insurance Policy

 

One of the most misunderstood concepts of life insurance policies is the so-called 4% guaranteed rate of interest.

As a result of it a lot of times people get a life insurance policy but don’t see what they are told – the guaranteed 4% rate of return.

The 4% isn’t a guaranteed interest rate of return, but rather a discount rate.

In reality, you will get somewhere between 3% to 5% as the Internal rate of return on policies, and 4% is right in the middle.

Let me explain!

When you buy a whole life insurance policy, the insurance company generally makes two promises –

  • Promise No.1 – They’ll pay the death benefit whenever you die, as long as you own the policy
  • Promise No.2 – Once you reach the age of maturity (typically 100 or 121) they will have a pile of cash equal to the initial face amount of the policy waiting for you when you hit that age of maturity, whether it’s 100 or 121.

Now, if you have a limited pay policy, let’s say life paid up at age 65, that doesn’t mean you’ll have the equivalent of the face amount available in cash at age 65. It means premium payments will stop at age 65 and the cash will continue to grow. So that at 4% the policy will have, a cash value that is equal to the face amount at the age of maturity (typically at age 100 or 121, depending on the policy).

Where do the 4% returns come from?

The 4% guaranteed discount rate comes from regulation 7702. Recent changes made to this regulation allowed the discount rate as low as 2%.

Basically, if the insurance company is using a lower interest rate, that means everywhere along the line they need to have more cash so they can keep Promise no. 2: to produce a cash value equal the face amount at the age of maturity, whether that be age 100 or age 121.

So consequently, if they’re applying a lower discount rate they will need to have cash more cash along the way – It means your cash value along the way should be higher. So, if you’re designing a policy for cash value accumulation, the changes in the regulation aren’t necessarily a bad thing.

The downside of changes in 7702?

Well, prior to the 7702 changes in 2021, the actual cost of pure insurance increased. For example, a $100,000 of the death benefit may have cost $4,000 per year prior to the change in 7702, may now cost you $4,800 per year.

So with it, you’re going to get less death benefit per dollar of premium

The death benefit is going to cost more, but that’s not necessarily an issue when you’re building the policy, designing it around accumulating cash.

Conclusion

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

If you like this post, don’t forget to leave us comments down below on what you think about this topic.

Want to learn more about this topic, check out our free web course to see how our process works. If you are ready to talk, feel free to schedule a free strategy session today to get started.

How do I protect my money from inflation?

“As long as you keep your money in the whole life insurance policy, your money’s going to grow on a tax deferred basis.”

 

 

Inflation is a rise in prices of goods and services. Inflation reduces the purchasing power of our dollars. The problem is, the longer we hold onto our money, the less it can buy for us. Here’s an example. If you were to go into your backyard and dig a hole and bury $1,000 and leave it there for 10 years and after 10 years you go back and dig it up, what will you have? Well, it’ll be something that looks like a thousand dollars, but at 3% inflation over those 10 years, that $1,000 will actually only have the purchasing power of $744. The problem is not only will you have lost $256 of purchasing power, but you will have lost 10 years of time that you can never recapture. The government is destroying the purchasing power of our dollars every time they print money. Do you think our government will need more money in the future? If our government needs more money, there’s only two ways they can get that money. Number one is taxes. Number two is they can print more money.

There are six ways that whole life insurance can help protect your money against the effects of inflation. The first way is buying dollars for future delivery for pennies. Which means the premium you’re paying is pennies compared to the dollars you’re buying in a death benefit. What better way to protect your net worth than to buy discounted dollars for future delivery?

The second way is that your premium stays the same, but because of inflation over time, it’ll feel like less. For example, if you have a thousand-dollar premium at 3% inflation and 10 years, it’s only going to feel like $744. In this instance, you have inflation working for you rather than against you.

The third way that whole life insurance can help protect your money against the effects of inflation is what we refer to as multiple duty dollars. A lot of times clients will ask us, “Hey, I want to start saving, but I have to pay down my debt first.” We actually show them how to start saving today and how to pay their debt off quicker. How we do that is through whole life insurance. We take $1 that was just going to perform debt reduction and use it to reduce debt, to create an asset, to create a death benefit, to create a disability benefit, to create a long-term care benefit and provide retirement supplement. We took $1, that was previously doing one job, and got it to perform the job of 6 multiple duty dollars.

The fourth way whole life insurance can protect against inflation is dividends. Although dividends aren’t guaranteed, dividends typically increase as the policy matures. That’s an addition to the guaranteed growth within the policy. As interest rates rise in the market, the dividends in the policy typically increase. All other safe money products, as interest rates rise, the value of the product decreases because of the inverse relationship between interest rates and price.

The fifth way that whole life insurance can protect your money against inflation is through collateralization.  The loan feature, your loan against a life insurance policy, is actually a collateralized loan against your cash value. So literally your money could be in two places at once because you’re borrowing against your cash value and getting a separate loan from the insurance company. Our clients have found that this can help them to take advantage of tremendous opportunities that are created when the market crashes because they can borrow against their cash value. When the market is down, they can buy into the market and then sell when the market rises. They can then put the money back into their policy and then use the money the profits gained from that transaction to supplement their income or to buy another policy. Our clients have found this to be a tremendous tool to show them how to take advantage of downturns in the market rather than become victims of market volatility.

The sixth way that whole life insurance can help protect against inflation is taxes. As long as you keep your money in the whole life insurance policy, your money’s going to grow on a tax deferred basis. Additionally, you’re able to access your cash on a tax-favored basis. This is a huge advantage over other financial products.

In summary, life insurance can help protect your money against inflation by reducing or eliminating taxation. It also makes your money more efficient, think multiple duty dollars. Thus putting you in a position to take advantage of market volatility, rather than becoming a victim of market volatility.

 

 

Funding Your Child’s Education

Want to start saving for your child’s future but don’t know where to start? Conventional wisdom tells us to save for college in one account and save for retirement in another. With so many options out there, it can be confusing which one might be right for you and your family. Today’s video covers your basic options for paying for college. The most common ways of paying for college are cash, cash flow, and borrowing/financing. We will give you three great reasons to why you should fund a whole life insurance policy to pay for college!

 

“Additionally, the money that you save in either savings account or 529 accounts are disclosed on the FAFSA form, so you’re actually going to increase the cost of college for your family.”

 

Are you thinking about paying for your children’s college education? The problem with funding your children’s education oftentimes isn’t a problem of funding the actual education. It becomes a question of, how do you fund this huge expenditure that sometimes costs more than your home and still stay on track for your retirement goals. No parent should have to choose between sending their children to college and funding their own retirement.

Conventional wisdom to tells us to save for college in one account and retirement in another account. The problem with that is, it leaves a good chunk of our money inaccessible at the time we need it most. Our process for funding college tuition includes a whole life insurance policy and you may be wondering why on earth would I fund a whole life insurance policy for college tuition and there really are three reasons. Access and control. It’s fast and has continuous compounding of interest. Basically, there’s only three ways you could pay for anything. Cash, cashflow, or borrow. Let’s look at these three ways. The first method of paying for college we’re going to look at is paying cash, whether that’s from a savings account or a 529 plan earmarked for college tuition. In order to pay cash, you have to have saved first, so you will have access to that money and control of that money, but when you pay for college, you’re actually wiping out compounding forever on that money.

Additionally, the money that you save in either savings account or 529 accounts are disclosed on the FAFSA form, so you’re actually going to increase the cost of college for your family. You’re actually being penalized for doing the responsible thing, which is to save for your children’s education. The second method of funding college that we’re going to look at is funding it out of your monthly cashflow, and let’s face it, if you’re fortunate enough to be able to pay out of monthly cashflow, it assumes you have access to that money. However, you’re giving up control of that and with that, you’re forfeiting the ability to ever earn compound interest on that money. The third method of paying for college is to borrow or finance and basically there are only four types of loans you can get for college. First are Stafford loans, they’re in your child’s name, second are parent plus loans. Third, are home equity loans and forth, are life insurance policy loans.

We’re going to discuss why life insurance policy loans as the preferred method of financing your children’s education. Let’s look at parent plus loans. With the parent plus loan, you gain access to someone else’s capital with the collateral of your future income. So, you get money when you need it, when your children are going to college, but you’re giving up control of your current and future cashflow in order to send your child to college. Now it is FAFSA neutral, but because you gave up control, you forfeit the ability to earn interest now and in the future on that cash flow. What you really need to look out for with a parent plus loan is that it kills your ability to save for retirement, not only while your kids are in college, but for about 10 years after that. It really hinders your ability to save for retirement on your own terms. So basically, all you have to show for it is a diploma in your child’s name.

Next, let’s look at a home equity line of credit for paying for college. With that, you have access to the money because you have equity in your house and the ability to repay the loan. But you obviously don’t have control because the bank controls the situation. They can call that loan whenever they want and you’re also forfeiting the ability to earn interest on that cash flow forever. It’s not going to increase the cost of college and you are rebuilding your home equity, so hypothetically you could have access to that money again in the future. Next we’ll look at using life insurance policy loans to pay for college tuition.

Now using insurance policy loans is kind of a hybrid between savings and financing and that the money that you have access to in your policy is the money that you’ve actually saved. However, in contrast to traditional savings account and 529 plans, this money is FAFSA invisible, so it’s not going to go down on your FASFA sheet and it’s not going to increase the cost of your college tuition. Additionally, you’re in control of the borrowing process as opposed to parent plus loans or home equity lines of credit because life insurance policy loans have an unstructured repayment process, meaning that you control the terms and conditions as to when or even if you pay back those loans. Additionally, with life insurance policy loans, you’re not borrowing money from the account. You’re borrowing money against the account so you’re never going to be interrupted in the compounding of interest on that money.

You have access, you have control, you have FAFSA invisible and you’ll have continuous compounding. That’s why we recommend life insurance policy loans to pay for college. That’s why we believe life insurance policy loans are the best way to fund your children’s college education. It allows you to send your children to their dream school without having to reduce your current lifestyle or derail your retirement in order to do so.

How to choose an insurance company for the Infinite Banking Concept.

In this video we break down the important things to consider when choosing an insurance company for the infinite banking concept.

1.) Choose the right agent

2.) The process is much more important than the product

3.) Make sure the company you choose is a mutual insurance company

4.) The company should have a proven track record of paying dividends and sharing profits with policy holders

There are hundreds of thousands of insurance agents out there, but only about 200 are licensed IBC practitioners with the Nelson Nash Institute. “

 

Are you thinking about getting an IBC policy but aren’t sure where to begin? The number one criterion when choosing the right insurance company for the infinite banking concept is to choose the right agent. There are hundreds of thousands of insurance agents out there, but only about 200 are licensed IBC practitioners with the Nelson Nash Institute.

As a licensed practitioner, we’re not only trained to set up and structure a policy, but most importantly, to guide you on how to use your policy throughout your life. It’s important to find someone who’s not only knowledgeable but who’s also implementing this in their own financial life. The last thing you want is someone who’s pitching you a policy but doesn’t believe in the concept enough to put their own skin in the game. Ultimately, your success or failure in any given methodology is going to come down to your execution.

The process is much more important than the product. The next criterion is to make sure you’re dealing with a mutual insurance company. Mutual insurance companies were formed for the benefit of the policy holders. All profits that the insurance company makes are funneled back to the policy holder in the form of tax-free dividends. In contrast, a stock owned insurance company funnels their profits back to their shareholders because they’re the owners of the company.

So, a stock owned insurance company is there for the benefit of the owners of the company, the shareholders. It’s similar to a bank. A bank is there for the benefit of the owners of the bank, the shareholders of the bank. You see, if you want to become your own banker, it’s important not only to control the process of the banking, but also to benefit from the profits of the banking, which can only happen with a mutual insurance company.

The next criterion you want to look for when choosing an insurance company? Does it have a proven track record of paying dividends and sharing profits with policy owners? The companies we choose for our clients have been paying dividends for more than 120 consecutive years. That’s World Wars, depressions, recessions, gas crisis’s, you name it. They’ve been through it all.

In conclusion, these are the criteria we use when choosing an insurance company for the infinite banking concept, but again, the most important thing is choosing the right agent for you. You want somebody who’s going to take the time to understand your situation and then set up a plan that will help you to maximize your benefits from the plan according to your situation.

 

Why use whole life insurance for the infinite banking concept?

If someone can get your money, is it really yours? In today’s video we compiled a list of six reasons why you should use whole life insurance for the infinite banking concept.
1. Control
2. Safety
3. Guaranteed growth
4. Collateral opportunities
5. Tax deferred growth
6. Asset protection

Life insurance is actually designed to have more cash tomorrow than it does today. “

 

 

Have you ever wondered why people use whole life insurance for the infinite banking concept? The first reason is, control. Let’s face it, you can’t regain control unless you’re actually in control. Life insurance is a unilateral contract. What does that mean? Well one party, the insurance company, has a binding obligation. They have to guarantee the cash value, the death benefit, and any other benefits. The other party, the policy owner, has very few promises, which is basically to pay the premium. Once the policy is approved and put into effect, the insurance company is working for you. That is control.

Number two is safety, life insurance companies reserve 95 cents of every dollar that’s deposited and in contrast, banks only reserved 2 cents for every dollar that’s deposited. Based on that, where do you think your money is safer? During the great depression, over 9,000 banks in this country failed. In contrast, less than one half of 1% of all life insurance company assets were impaired. That’s a big deal because people who owned life insurance contracts during that time were not only able to access their cash value to weather the storm, but they were also able to access it to take advantage of opportunities that arose during that time.

One of the best examples of this is JC penny, the American retailer. He had over 1400 stores before the great depression and he actually borrowed against his life insurance to keep his business open and weather that storm. This takes us to our third reason. Guaranteed growth. Life insurance is actually designed to have more cash tomorrow than it does today. There’s no chance for market loss because your growth is guaranteed. Your money is allowed to continuously compound. This takes us to our fourth reason. Collateral opportunities. What does that mean? Collateralization is important because it allows you to access your money without interrupting compounding. It’s like your money could be in two places at one time.

Collateralization means that your money is always in your policy and if you want to access it, the insurance company gives you a separate loan and puts a lien against your money, your cash value. When the loan is paid off, the lien is released, and your money is exactly where it would have been had you not borrowed. In essence, your money has been able to achieve continuously uninterrupted compounding.

Number five is, tax deferred growth. Money grows in your policy on a tax deferred basis. Keep in mind that doesn’t mean that it grows tax free, but you can access it on a tax favored basis. The point is you can’t accumulate wealth in a taxable environment. Let me give you an example. If you start off with a dollar and that dollar doubles every year for 20 consecutive years, meaning that you earn 100% interest each and every year for 20 consecutive years, at the end of 20 years, your dollar would’ve grown to $1,048,576 however, you didn’t pay tax on that money. If you had to pay tax in a 25% tax bracket, how much do you think you would be left with after tax?

Well, 25% of 1 million is 250,000 so I think we’d be left with about $750,000.
The reality is you would end up with $72,571, but what happened to the rest of the money? Well, it was never there. Your money was never allowed to double. You were never allowed to earn 100% interest because you had to pay taxes each and every year along the way. That’s why you end up with less money in a taxable environment.

Number six is, asset protection. Life insurance is protected from creditors, predators, and legislators. Life insurance is regulated by the 50 States. Each state has different levels of asset protection. Check with your state to see how much protection you have on your policies, but let’s face it, if somebody can get your money, is it really yours?

Let’s recap the six reasons why we use whole life for infinite banking. Number one, control; two, safety; three, guaranteed growth; four, collateral opportunities; Five, tax deferred growth and six, is asset protection. My mentor, Nelson Nash, author of the bestselling book Becoming Your Own Banker, said it best. Wealth has to reside somewhere. What better place than a whole life insurance policy? A free contract between free people!

What are the benefits of whole life insurance?

What are the benefits of whole life insurance? In this video, we explain whole life insurance benefits and why they are essential in any diversified portfolio. A benefit of whole life insurance is that your money is continuously being compounded. There are three known factors that could interrupt compound interest, using your money, taxes, and market losses. We break these down for you and explain why whole life insurance takes them out of the equation. Another added benefit is that whole life insurance also protects you against inflation. When you own a whole life insurance policy, you’re allowing yourself to take risks in other investments!

“To call whole life insurance an investment is actually demeaning to whole life insurance.”

 

 

Have you ever wondered what the benefits of whole life insurance are? The number one reason why whole life insurance should be a part of your portfolio is because of efficiency. When we’re talking about efficiency, in this case, we’re talking about the fact that your money is continuously compounding in a whole life insurance policy. There are three things that could really interrupt the compounding of interest on your money.

The first, is using your money, then taxes and then market losses. So how does using your money interrupt compounding? Well basically you save and then you use the money to buy a car, or to make a down payment on a house, or to pay for a vacation or to pay for college, and then once you access that money, it’s no longer available for compounding. In contrast, when you take a loan against your life insurance policy, you’re able to continuously compound because you’re taking a loan against the cash value. You’re not taking the money from your life insurance policy.

The second factor that could interrupt compounding on your money are taxes. When you think about it, with traditional savings and investment accounts, you get a 1099 or a dividend statement and with mutual funds you could actually get a 1099 or a capital gain statement in a year when you lost money. Overall, it’s sort of like adding insult to injury and a lot of people don’t even realize how inefficient this really is because they’re paying their taxes from their lifestyle. They’re not taking money from their investments or savings, so they never have an opportunity to see the eroding effect that taxes are having on their investments and savings. The bottom line is, you cannot accumulate wealth in a taxable environment.

The third factor that can interrupt compound interest are, market losses. When you lose money in the market, you take a step backwards and need to restart the compound interest process. Again, with whole life insurance, you have contractual growth, which means that the growth is guaranteed by contract in the policy. On top of that, you have the ability to earn dividends and once dividends are paid, that could never be taken away. In conclusion, whole life insurance is efficient because it takes the three factors that could interrupt compound interest out of the equation.

The next benefit of owning whole life insurance is protection against inflation. Inflation is known as the stealth tax. You experience it but you never actually see it and what better way to protect yourself against the stealth tax than to purchase dollars in the future with pennies today. Use those pennies, the cash value in the life insurance, to purchase additional income producing assets. Life insurance is known as an asset because you’re able to maintain the death benefit, but also access the cash value along the way to purchase other investments and assets. When you get to retirement, you can use those additional assets to supplement your income and finally, you can leverage the death benefit in retirement to generate some additional passive tax-free income. Whole life insurance is a way to truly diversify your portfolio. True diversification is putting money you don’t want to lose in a place that you could never lose.

In conclusion, whole life insurance compliments your other assets. By owning a whole life insurance policy, you’re allowed to take risk in other investments, but understand life insurance is not an investment. To call whole life insurance an investment is actually demeaning to whole life insurance. This is because whole life insurance can do so much more than an investment.