Money, Wealth, Life Insurance
Page 4
Total cash value at the end of every year
Total death benefit at the end of every year
Future income from the policy
Now keep in mind, these are examples, but a similar ratio of contributions to cash value should still apply no matter how little or much you put in. $20,000 is not a magic number, a limit, or a minimum of any kind. There are no minimums or maximums as stated previously.
What you’ll quickly notice as you visit the first year of this illustration is that you’re actually behind. You’ve put in $20,000 but only have $18,365. While better than the typical $0 in first year of most cash value policies, it’s still behind. But the truth is it’s a small price to pay, and it has minimal effect on the policy growth. Here’s why…
Since this is not a savings account, we are abiding by a different set of rules. You see, the insurance company is taking on a lot of risk. In this scenario, they’re letting you use the majority of your money, and taking on the risk of nearly 1 million dollars in the event that you die (Death Benefit year 1: $951,544). In order to do so, they hold a little money upfront, and every year you have the policy, a little more of it comes back. It’s only a few short years and you are back in the positive. This way the insurance company is still protected, and you get maximum benefits.
Now let’s jump to year 29 in this illustration. The cash value is $1,210,266 at this point, and growing at a 5% internal rate of return (meaning its as if every year your money earned 5%). So even though you were slightly behind in the early years, it’s had little to no effect on the future growth. Here’s the kicker though; You now have $2,198,013 of death benefit, an extra $987,747 to your loved ones if you died that year. You’ve successfully built in a massive legacy that will have a large effect on your family.
So here’s the question. Are you willing to give up the use (emphasis on ‘use’) of some of those early dollars (with minimal long term effect on growth), in exchange for the ability to pass nearly an extra million dollars to your loved ones? Are you willing to give up the use of a few dollars in exchange for tax-free growth, access to your money, guarantees, safety, and a slew of other benefits we’ve already discussed?
It’s obviously an extremely simple answer… yes.
Future Income
Now that we’ve looked at the years of savings, lets look at the second half of the numbers.
Keep in mind, at this point, we have saved a total of $580,000.
This is the second half of the same example we’ve been looking at. At age 70, we’ve decided to stop putting money into the policy, and by age 76 we’ve decided to take income from the policy.
In this scenario we are successfully taking $120,000 per year for 19 years. A total of $2,280,000 of total income. Not bad.
Now keep in mind this income is tax-free when handled properly, and doesn’t have to be taken out in systematic increments. You can take it out however you see fit. It’s recommend you consult with a professional to make sure it’s done correctly.
Summary
Tip of the Iceberg
I’ve prepared 2 more case studies that show a different way to fund a cash value life insurance policy, but before I go into them, I want to hit on something important here.
These illustrations represent exactly how your money would grow inside a well designed, high cash value life insurance policy. But truthfully it is just the tip of the iceberg.
What the numbers can’t show are numerous reasons this type of strategy is so valuable, and so heavily used by America’s wealthiest individuals and families. Here’s a brief list of the items the numbers can’t show:
The extra growth earned by not using a low interest savings account to save money for large purchases (i.e. cars, boats, down payments, weddings, education).
The taxes you saved by keeping your growth tax free.
The losses you would avoid by keeping it safe.
The interest you would save by having access to your money, and not being required to borrow from credit card companies, banks, and other lending institutions at high rates.
The extra interest you could earn by using your dollars for investment or business opportunities.
All these items have been discussed in previous chapters, so reference them as needed.
What’s important to note is there is a completely different set of numbers that go hand in hand with the simple projection of growth. The savings in interest, taxes, and opportunity cost amount to thousands and thousands more to your future wealth.
The “Banking” Concepts
We’ve already covered loans (See ‘Accessing Money Inside Your Policy’), but this case study helps illustrate a very important point. There are entire financial philosophies geared specifically towards this idea, some call it Infinite Banking, Privatized Banking, Becoming Your Own Banker, etc. Much of which stems from Nelson Nash’s book Becoming Your Own Banker. I’m going to simplify it here for you.
It’s the idea that you should treat your capital the same whether you use it, or you let someone else use it. Let’s look back at year 29. There is $1,210,266 of cash value. That’s a good chunk of money. Since the insurance company is doing its part to grow the money, there is really only one reason for possibly falling short of it… you. If you take money and don’t put it back, you’ll be single handedly responsible for not reaching your financial potential. Don’t let yourself be that reason.
Apart from the fact that the loans are advantageous, they keep the death benefit high, and they keep it tax friendly, loans ensure that your money never stops growing. Every dollar inside the policy is virtually guaranteed to reach it’s potential because it grows uninterrupted. It puts you at a higher level of accountability which will keep you on the path to building wealth.
Rate of Return
One last note. We’ve already discussed how the growth compares to other investments, but I advise you not to get caught up in the returns. This is a platform to improve and enhance all your financial decisions. To compare the returns directly to other investments would be a complete misunderstanding of what I’m trying to portray. I’m not suggesting this as a replacement for good investment opportunities, but rather a better place to store and access cash for those investment opportunities. You can have the best of both worlds here.
The goal for many will be to find a better opportunity to grow their money and get better returns. That is great and admirable. Using cash value life insurance will not inhibit your ability to do so. Rather it will make those opportunities even more profitable (See “But I Can Get a Higher Return”).
Case Study 2
Lump Sum Contributions Plus Ongoing Savings
This case study is a little different. Since life insurance is typically sold wrong, many are under the impression that you can’t put in lump sums into a policy, but have to pay the same premium for life. Since we’ve already discussed some of these items in previous chapters, the purpose of this case study is to show you how efficient it is to put in large sums of money quickly into a life insurance policy. I’m going to show you the following things:
Initial lump sum of $150,000 divided into two payments of $75,000 each
Annual contribution of $20,000 after year two
Total cash value at the end of every year
Total death benefit at the end of every year
Future income from the policy
The same statement applies here. These numbers are examples and are not the rule. It can be altered significantly depending on your circumstances.
By splitting the lump sum into two contributions, we maximize it’s efficiency. While we are still slightly behind in year one, we see positive growth in year three. Just like any other investment, since we are putting more money in upfront, money is working for us sooner, and it takes less time to become highly efficient.
While the returns are similar to Case Study 1, around 5%, there is more capital working, and it is more efficient quicker, with more cash value and more death
benefit.
Backdating the Policy
In many cases, cash value life insurance policies can be “backdated” to increase the ability to get money in quicker. For example: Above, we are splitting $150,000 into 2 contributions. If we start the policy on January 1st, the next premium contribution will be January 1st of the following year.
In some cases you would like to get that money in faster than a one year spread. Backdating the policy is a way to speed up that process. Instead of the policy being effective January 1st, often times insurance companies will allow that effective date to be up to six months sooner. In this case, the policy’s effective date is July 1st of the previous year. By doing so, the policy’s anniversary date would be technically six months later, or the following July 1st. This puts the lump sum into the policy in the span of six months as opposed to a full year.
The second half of this case study shows the difference in retirement income with putting more money in upfront. In this scenario, we’re seeing an increase from $120,000 per year of income to $160,000. Simply put, the more you put in, and the faster it gets in there, the better the long-term growth.
Summary
Case Study 3
Lump Sum Only
This last case study illustrates the ability to drop in cash immediately, without worrying about ongoing savings. While we’ve talked about flexibility, and the fact that you don’t have to pay premiums your entire life, this case study shows you that reality.
Here’s what I’m going to show you:
Initial lump sum of $150,000 divided into two payments of $75,000 each
No annual contribution
Total cash value at the end of every year
Total death benefit at the end of every year
In this illustration we have successfully dropped into the policy a full lump sum of $150,000 without contributing another dollar. As you can see, the policy requires no more contributions, and maintains it’s growth.
This is a great way to illustrate the flexibility of these policies when structured appropriately.
Chapter 11
My Final Words
It’s unfortunate to look at the wealthiest country in the world having so many of its citizens struggling financially. We are overspending, leveraging excessive amounts of credit, and struggling to make wise investment decisions. We’ve followed the unfortunate belief that the markets are the best way to save for your future, that locking money into government plans is smart, and that the Wall Street advisor will not let you down.
I hope this book has been effective at bringing you back to our roots. I hope it has helped you see that you don’t need to take risk to create a strong, stable financial foundation, and that there are better options out there than what you may have known before.
Cash value life insurance is a powerful financial tool that can put you back on the path to real wealth. It has been used by wealthy Americans, big banks, and large corporations for centuries and has stood strong through some of the most difficult financial times in history.
It is one of the least understood financial tools we have, and the one most underutilized by the average American.
While not everyone is in the right situation to take advantage of the benefits inside a cash value life insurance policy, I truly believe it is the best place to build a strong financial foundation. It is unparalleled in the benefits that it offers, and it gives you complete and total control.
I have personally found sincere satisfaction in putting these strategies into practice in my own life.
Thank you for taking the time to read this book. I hope this information will be as beneficial to you as it has been to me.
If you would like to discuss more how we can help, feel free to reach out to whoever gave you this book, or sign up for a free financial analysis here:
ABOUT THE AUTHOR
Financial expert Jake Thompson has helped thousands of individuals, families, and business owners use cash value life insurance to build wealth and find financial peace of mind. He is one of the founders of Real Wealth Financial, an innovative financial strategies company specializing in proven models used by the wealthy. Learn more about him and his company at Real Wealth Financial.com or by using the contact info below.
Contact Information
Jake Thompson
Real Wealth Financial
Jake@RealWealthFinancial.com
(208) 639-0804
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[1] The Dow Jones Industrial Average (DJIA or “the Dow”) represents 30 of the largest and most widely traded stocks in the United States. It includes companies like General Electric, Exxon and Microsoft and is one of the most watched indices in the world. It is an indicator of how the stock market is performing.
[2] "Historical Prices for Dow Jones Industrial Average." Yahoo! Finance. N.p., n.d. Web. 27 Dec. 2013.
[3] U.S. Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1957 (Washington, D.C., 1960), p.70.
[4] "Great Depression." : The Concise Encyclopedia of Economics. N.p., n.d. Web. 28 Dec. 2013.
[5] Alampur, Gopala. Die Broke and Wealthy: The Insurance Bonanza That Beats the Tax Man While You're Still Alive. Toronto: Chestnut Pub. Group, 2005. Print.
[6] "FDIC: Institution Directory." FDIC: Institution Directory. N.p., n.d. Web.31 Dec. 2013.
[7] "RMS Manual of Examination Policies." Federal Deposit Insurance Corporation, n.d. Web. 2 Jan. 2014.
[8] Dyke, Barry James. "CORPORATE-OWNED LIFE INSURANCE." The Pirates of Manhattan: Systematically Plundering the American Consumer & How to Protect against It. Portsmouth, NH: 555, 2007. 174-176. Print.
[9] Dyke, Barry James. "CORPORATE-OWNED LIFE INSURANCE." The Pirates of Manhattan: Systematically Plundering the American Consumer & How to Protect against It. Portsmouth, NH: 555, 2007. 174-176. Print.
[10] Historical Dividend Studies From Massachusetts Mutual Life Insurance Company. N.p.: Massachusetts Mutual Life Insurance, n.d. 2008. Web. 23 Dec. 2013. < https://fieldnet.massmutual.com/public/life/pdfs/li7954.pdf>.
[11] 2012 CRESTMONT RESEARCH STOCK MARKET MATRIX. N.p.: n.p., n.d. Crestmont Research. Www.CrestmontResearch.com, 2013. Web. 23 Dec. 2013.
[12] Not all insurance companies have the same loan provisions and may not provide the same benefits.
[13] If the cumulative premium payments exceed certain rules under the Internal Revenue Code, the life insurance policy may become a Modified Endowment Contract (MEC). This may alter the tax status of the policy. A professional well-versed in these products can ensure the policy does not become a MEC.