Money. Wealth.
Life Insurance.
How the Wealthy Use Life Insurance as a Tax-Free Personal Bank to Supercharge Their Savings
Jake Thompson
Copyright © 2013 Jake Thompson
Disclaimer: The material presented in this book is for informational purposes. While care has been taken to present the concepts in an accurate and updated fashion, the author makes no expressed or implied warranty of any kind and assumes no responsibility for errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of the use of the information contained here. The information in this book is intended to provide general information and does not constitute legal, financial, or tax advice.
All rights reserved. No part of this book may be reproduced, stored in a special system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior permission from the publisher.
ISBN: 1494896478
ISBN-13: 978-1494896478
DEDICATION
To Alissa and Adri.
Contact Information
Jake Thompson
Real Wealth Financial
[email protected]
(208) 639-0804
Table of CONTENTS
Acknowledgments
i
1
The Greatest Test of All
1
2
Banks, Corporations, and Billions of Dollars
10
3
How I Earned 300 Percent Returns
16
4
Winning With Taxes
19
5
What the Wealthy Know About Risk
22
6
Supercharged Savings With Cash Value Life Insurance
24
7
A More Efficient Savings Strategy
39
8
Case Study 1: Consistent Contributions
43
9
Case Study 2: Lump Sum with Consistent Contributions
51
10
Case Study 3: Lump Sum Only
57
11
My Final Words
60
ACKNOWLEDGMENTS
This book is a compilation of years of learning from some of the greatest people I know. Mentors, partners, and family have played a huge role in the completion of this book.
Chapter 1
The Greatest Test of All
Please travel with me in history for just a moment. It's the latter half of the 18th century, America has just gained its freedom, and the birth of a great nation is underway. Some of the greatest minds in history are creating their footprint on the very land we stand on today.
Among many memorable events, one of the first financial tools of the western world is created. A tool with origins dating back to ancient Rome. And while no one knows it just yet, it will become a lifeline, a protection, and a champion of the greatest test of all…
…the test of time.
It will literally save thousands of individuals, families, and businesses from financial ruin and devastation. It will be a beacon of hope in the midst of chaos. And most importantly, it will be a source of stability and control in an industry full of crooks and criminals, willing to do anything to make an extra buck.
Over the next few centuries, it will be so ingrained in American culture that making changes to it will be near impossible. It will become the last place truly protected from the corruption of greedy investors, untamed government, and unforeseen financial turmoil.
I like to refer to this tool as a personal bank on steroids, an unparalleled place to stockpile cash, and a financial bunker for tough times…
...but it is better known as cash value life insurance.
In this book I’m going to show you why and how many wealthy Americans, banks, and businesses have used life insurance as a platform for wealth. I’m going to help you see why I’ve made it the foundation for every part of my finances, and how you can do the same.
I’m also going to share with you how to create and use a specialized type of life insurance I call “high cash value life insurance,” and how you can use it to benefit yourself and your loved ones. I’m going to teach you things only a small fraction of financial advisors and insurance agents have ever even heard of, much less understand. And finally, I’m going to share with you the raw numbers, the proof, three case studies to illustrate exactly how it works.
Now let’s be clear. I’m not talking about that “garbage” peddled by most insurance agents.
Rather, I’m talking about a highly efficient, supercharged savings vehicle designed for stockpiling wealth. A product so powerful it’s responsible for the success of Walt Disney, JC Penney, McDonald’s, and thousands of others. I’m talking about a vehicle designed by the wealthy to virtually guarantee financial success and amass wealth. More on that shortly…
Now back to history. For the next century and a half America is booming. While we are young and ambitious, we are taking massive strides, firmly making our way into the pages of history.
Benjamin Franklin discovers electricity.
Thomas Edison invents the light bulb.
Alexander Graham Bell invents the telephone.
We hit the Roaring Twenties, the decade that followed World War I. It is a time of wealth and excess; a time when people believe in the markets, the economy, and the government. But what soon follows would disrupt the lifestyle of almost every American…
…a series of truly tragic events…
…a time known as “The Great Depression.”
The Great Depression
In October of 1929, the stock market suffered severe losses. It plunged over 22% in just a few short days, making headlines across the country. But this was only the beginning.
Over the next several years, the markets would have difficulty recovering. The Dow Jones Industrial Average[1] would take a staggering 32-year setback, losing nearly 90% of its value.
From it’s peak of 381.17 in September 1929, it would close at a shocking 41.22 on July 8, 1932.[2]
It would take another 22 years to surpass it’s all time high before the crash in 1929.
Nearly 25% of all American’s would be unemployed and unable to find work.[3]
Over 40% of banks would shutdown.[4]
Millions of savings accounts would simply disappear.
Here’s where it gets interesting…
While banks, businesses, and government sectors were closing their doors, one sector of the economy stood strong and steady, unaffected by these horrible circumstances. Life insurance companies.
Life insurance companies remained virtually unscathed. While the markets suffered severe losses, owners of cash value life insurance didn’t lose a dime. They didn’t lose any money in the Great Depression, and they haven’t lost money since.
In fact, it was such a stable place to have money that while many people lost everything, those who owned life insurance were paid profits in every single year of the Great Depression, and every single year after.
It was truly a beacon of hope amid fear and chaos. It was the only place that truly triumphed the devastation of that time.
This is extremely significant. Some believe our most difficult times are ahead of us. With difficult political issues at the door like the national debt, government spending, Social Security, Medicare, as well as economic issues like inflation, taxes, debt, and so on, knowing how and where to keep your money safe is becoming increasingly important.
As you’ll soon discover, life insuran
ce companies played a big role in helping families and businesses stay afloat, and ultimately trump these difficult circumstances.
JCPenney
When the market crashed in 1929, JCPenney, then a dry goods store for mining and farm families, was severely affected.
As the sole owner, James Cash Penney took a huge dive in company and personal wealth. The financial setbacks were so devastating that it even took a toll on his physical and mental health.
Fortunately, Mr. Penney had accumulated massive wealth inside his cash value life insurance policies, and was able to borrow against them to help the company stay afloat and eventually rebound. If he hadn’t used cash value life insurance as a tool to keep his money safe and accessible, it likely wouldn’t have been there, and JCPenney would have likely closed it’s doors.
When he died, the Grand Rapids Press wrote the following about him: “In the Great Stock Market Crash of 1929 he was almost wiped out, but with the money he borrowed on his $3 million dollar life insurance policy, he was able to rebound.”[5]
Today, JCPenney takes in revenues of $18 billion a year and has over 1,100 stores worldwide.
Walt Disney
Walt Disney is a man who has influenced the vast majority of people across the globe. From animated pictures, to theme parks and attractions, most of us have enjoyed the work he did in his life.
But what most people don’t know is that without his cash value life insurance policies, much of what he built would not exist today.
Ever been to Disneyland? It is one of the most popular attractions in the world. People fly in from all over the world to visit this magical kingdom.
But when Walt Disney wanted to take his successful animated features and television programs and turn them into an amusement park for children and parents, not everyone believed in his vision.
At the time, the only amusement parks in the country were run-down attractions. They were known to be shady and dirty, and were hardly a place for families and children.
Believing it would be unsuccessful, potential financiers of Walt’s venture rejected his request for financing. If Walt wanted to start his theme park, he’d have to find another way.
Fortunately Walt was a very savvy individual, known for his success in business and finance, and had been stockpiling cash into his life insurance policies. Since banks and lenders continued to reject his financing needs, he decided to provide his own financing. Among other things, Walt borrowed against his cash value life insurance policies, and in 1955, Disneyland opened its doors for the first time. Within 1 year over 3.5 million people visited the park. It was an instant success.
“It takes a lot of money to make these dreams come true. From the very start it was a problem. Getting the money to open Disneyland. About $17 million it took. And we had everything mortgaged, including my personal insurance...” – Walt Disney
McDonald’s
All of us know McDonald’s, the largest fast food restaurant in the world, but not everyone knows Ray Kroc. Ray was one of three partners interested in a nationwide franchise of restaurants that sold hamburgers. After six years of being in business, Ray bought out the McDonald brothers and became the sole owner of the McDonald’s we know today.
What’s more interesting is that Ray relied heavily on cash value life insurance to store money. It played a major role in getting the company off the ground.
For the first eight years Ray didn’t take a salary, and made good use of his two cash value life insurance policies to help overcome constant cash-flow problems. He used them to help cover the salaries of key employees, to pay for unforeseen expenses, and he even used some of the money to create an advertising campaign around the infamous Ronald McDonald.
Today, McDonald’s serves more than 50 million people every day, with more than 30,000 locations around the world. Much of the success of McDonald’s can be attributed to Ray’s wise use of cash value life insurance.
Foster Farms
In 1939, a young couple named Max and Verda Foster borrowed against their life insurance policies to invest in an 80-acre farm in California to raise turkeys and chickens. Today, Foster Farms has more than 10,000 employees and sells products all across the globe.
Stanford University
After Leland and Jane Stanford lost their son to typhoid fever, they focused their efforts and their wealth on helping other people’s children.
In 1891 the first 555 students enrolled at Stanford University. But after Leland died in 1893, it became a financial struggle. Not wanting to give up what she so deeply believed in, Jane used her husband's life insurance policy proceeds to help fund operations and pay faculty, allowing Stanford University to weather a dangerous six-year period of financial distress.
Pampered Chef
After having success with Tupperware’s marketing strategy, Doris Christopher believed women needed tools to help them make cooking quicker and easier.
Using her cash value life insurance policy, Doris funded the first inventory for what is now a billion dollar company with over 12 million customers, Pampered Chef.
Millions More
While we’ve only covered a few stories here, there are millions more that benefit from cash value life insurance every day. But individuals aren’t the only ones taking advantage of its benefits. Banks and Corporations are notorious for placing billions of dollars in cash value life insurance.
Chapter 2
Banks, Corporations, and Billions of Dollars
While many wealthy individuals maximize the use of cash value life insurance, there is one group that really understands its value. This same sector of the economy controls nearly every aspect of our economy. Banks.
Cash value life insurance plays a massive role in financial institutions, corporations, and banks. More than you could ever imagine. These organizations buy life insurance by the billions, and use it for many different reasons. Not only does it increase their financial stability and reduce their taxes, it is an ideal place to fund employee pensions, healthcare costs, and other benefits. It’s so common among banks and corporations that it even has it’s own name. Bank-Owned Life Insurance (BOLI) and Corporate-Owned Life Insurance (COLI).
The FDIC makes available the balance sheets of nearly every major bank. The following figures are directly from FDIC.gov[6] and represent the exact amount of money the following banks hold in life insurance.
Banks are in the business of money. They have some of the greatest minds in the world, including economists, attorneys, accountants, financial analysts and other advisors, helping them increase the efficiency and use of their capital.
It is not insignificant that banks place billions of dollars in life insurance. It’s a reflection of the value they place on this powerful asset. For banks, it provides the ultimate in safety, stability, and growth. More importantly, the FDIC allows this asset to be classified as Tier 1 capital, which is the safest capital a bank can have.[7] Tier 1 capital is considered to be the core measure of a bank's financial strength.
We can learn a lot from banks, but they aren’t the only ones benefiting from this powerful asset. Corporations are also heavily involved in buying life insurance in mass quantities.
In his book The Pirates of Manhattan, the author indicates that over 68% of Fortune 1000 companies use life insurance to fund supplemental executive retirement plans (SERPs).[8] While it has many other benefits and uses for businesses and corporations, it’s interesting to note that in order to fund an employee’s retirement plan, they use cash value life insurance. Its ability to provide the stable growth necessary to create a predictable income is one of its most powerful features. As you’ll soon discover, you too can use it to create a predictable income down the road.
Here is a list of some well-known companies that hold life insurance as an asset:[9]
Companies that Own Life Insurance
Lies on Wall Street
While banks and corporations are taking advantage of the benefits of cash value life
insurance, the rest of America is falling victim to a deadly lie. We are being poisoned with the idea that volatile, risk-based investing in the stock market is the best way to prepare for retirement. We’ve been conned into believing that in order to achieve our goals we must invest our hard earned money into the complex, misleading, unproven theories of Wall Street; that we must put our faith in large Wall Street firms to guess correctly which stocks will perform.
In the 1900s, it’s estimated that over 50% of savings went into cash value life insurance. It was the staple for safety, protection, and predictable future income for decades. It’s only been in the last few decades that people have fallen prey to a contrarian belief. By transitioning money from the safety and guarantees of a cash value life insurance policy to risk in the stock market, Wall Street firms stood to gain a lot. And they did. In fact, since the advent of the 401k and other government plans, the stock market has nearly quadrupled in total assets. This was a huge gain for Wall Street firms and advisors, but a huge loss for Americans.
Money, Wealth, Life Insurance Page 1