Archive for March, 2010

0% Financing with Whole Life Insurance

Monday, March 29th, 2010

zero percent 0% Financing with Whole Life InsuranceThese days 0% financing seems to be offered very regularly on vehicles, furniture and electronics. But wouldn’t it be great if you always had access to a pool of funds with no interest expense? When you borrow from specific whole life insurance plans you can. The key is to find a non-direct recognition life insurance company.

Direct recognition companies pay dividends on the policy’s available death benefit and cash value. When you take out a policy loan these values drop. Other companies, the non-direct recognition kind, pay dividends on your death benefit and cash values as if no loans have ever been taken. The money is taken from another account, the general fund, and an IOU is essentially placed on your account. Since your policy remains intact the company will pay you the full dividend.

This is very important. Who wouldn’t want to be paid on money that they had taken out of an account? I would venture to say NO ONE! When you withdraw money from a CD, money market or mutual fund do they continue to pay you? Absolutely not!

When you take a policy loan, that loan is subject to interest charges. Why? You must pay the company back in order for them to maintain the guarantees they made in their contract with you. Counteracting the interest charges is the guaranteed interest income that the company is paying you. Typically this is 4-5%. Add your dividends to the guaranteed interest income and if they equal the interest rate charged then you effectively have 0% financing. This is also referred to as a wash loan.

When dividends and interest exceed the interest charged then your cash values will actually grow.

Where can you find 0% financing…even 1% financing…where you get to choose the terms and approve the loan? The answer: A properly placed whole insurance policy. You’re not limited to buying a specific product from a specific retailer. Since you control the funds and get first access to the cash values, you decide what to finance. The key is finding a strong insurance company that is non-direct recognition. I know a few!

Scott Storace

Tags: cash value, guarantee, life insurance, whole life
Posted in Business Planning, Financial Strategy, Whole Life Insurance | No Comments »

Is Your Ship Sinking?

Thursday, March 18th, 2010

Sinking Ship Is Your Ship Sinking?With 25-35% paid in taxes and another 25-30% paid in interest expense, your ship might be sinking. At best, the burden of these expenses is keeping it from moving very quickly. Taxes and interest expenses are the 2 biggest holes in anyone’s ship. The average American loses 60% of their income to taxes and interest. Let me ask you this: How big are your holes?

Think of a bucket with holes in it. You can pour water in but it drains right back out. This is a metaphor for our financial lives. We are constantly throwing money in our buckets trying to fill them up, only to have it leak back out through a variety of expenses. The sad thing is that we have been trained taught and educated to believe that this is the way it is or it’s a normal cost of business. Well, it doesn’t have to be. Plug some of those holes and your bucket will fill up faster…without having to add more income or take on more risk.

How much did you spend in 2009 in:

  1. Income Tax :   Federal, State and Local
  2. Sales Tax:   6-8% average on most purchases
  3. Mortgage Interest including Home Equity Loans: Typically 90% in the beginning of the loan and 52% over the life of the loan. Look at your Truth in Lending Statement.
  4. 4.       Automobile Interest Expense
  5. 5.       Credit Card Interest Expense: Typically 12-18%
  6. Finance Fees: Such as refinancing or purchasing a property
  7. 7.       Bank Fees, Investment Transaction Fees, Management Fees:

I challenge you to find out how much you spent in these areas. It will stagger you. And until you understand where your money is going you won’t know which holes need to be plugged.

The Infinite Banking Concept is geared toward plugging these holes. To do this we use a properly structured, tax-advantaged whole life insurance policy. By funding a policy and then using it as your first means of financing it allows you to recapture the interest expense you would have paid elsewhere.

We have been taught to get our loans from the bank. And in some cases we need to. But by building your own system of banking you can reduce and potentially eliminate your dependence upon traditional banking institutions for financing. By borrowing from yourself and paying yourself back, the interest expense goes back to you. In addition we can eliminate loan finance charges and transaction fees.

Take the challenge and identify where your money is truly going. Or contact me and I’ll do it with you. You’ll be amazed!

Scott Storace

Posted in Infinite Banking System | No Comments »

Treasure Found: The Living Benefits of a Death Benefit

Saturday, March 13th, 2010

treasure Treasure Found: The Living Benefits of a Death BenefitHow can you use a life insurance death benefit while you’re still alive? If you’re guaranteed to receive it, you can. It’s like finding buried treasure. The chest that you’ve been filling yet storing away can be opened and used.

The death benefit that is provided by whole life insurance is guaranteed to pay out as long as you maintain the policy. It’s a guaranteed asset the moment the policy is opened, or in-force. Think about that for a minute. You did not save additional money nor did you invest better and receive a higher rate of return. You added no risk yet upon your death your beneficiaries will receive the proceeds of your death benefit…guaranteed. This is not offered by any otehr financial vehicles except annuities and other forms of life insurance. However, it is unlikely that you will receive a death beenfit with term insurance. Since premiums get astronomically expensive during the latter years of life, most are either converted or dropped. In fact, only 1% of term policies ever pay a death benefit. Therefore, this discussion will be centered around whole life insurance.

The death benefit can become an instant legacy or inheritance left to younger generations. Businesses use the guaranteed proceeds to recoup benefit expenses paid to key personnel. Financial planners use the guaranteed death benefit to recover the loss of assets from estate taxes. There are many ways that your life can change if you knew that your family, business or estate would receive funds upon your demise.

Let’s take one example: Let’s assume that you wanted to leave your children with your assets yet you wanted to increase your retirement income. By utilizing a properly funded whole life insurance policy you could tap into the equity of your home via a reverse mortgage. The monthly payments that you receive from a reverse mortgage are tax-free and you are guaranteed to receive payments for life, similar to an annuity. You can spend down your home equity knowing that the death benefit will replace it upon your death, all while increasing your tax-free retirement income.

When you do pass away your beneficiaries have the choice of paying off the home  or selling it and retaining the income tax-free death benefit for other purposes.

These are some examples of the living benefits of a death benefit. Whether for business or personal use, the guaranteed death benefit enhances strategic business, tax, investing and retirment planning.

Scott Storace

Tags: guarantee, life insurance, tax benefits, tax-free, whole life
Posted in Business Planning, Estate Planning, Financial Strategy, Investment Planning, Retirement Planning | No Comments »

The Great Insurance Debate: Term or Permanent?

Sunday, March 7th, 2010

Debate The Great Insurance Debate: Term or Permanent?A debate has been raging in the insurance industry since 1977 when Arthur L. Williams Jr., founder of Primerica, mass marketed the concept of “Buy Term and Invest the Difference.” This concept took off like a wildfire and put the proponents of permanent life insurance on their heels. Both sides have been slinging the mud ever since.

Personally, I think both concepts have their merits. If you follow this blog or have been through my website you’ll clearly see that I’m a proponent of a niche within the permanent life insurance industry that is referred to as The Infinite Banking Concept. I’m a big believer in the concept and won’t take your time to re-hash why. See previous blogs. However, I will note that I have never believed that one product or concept fits all. I will use this blog to share both sides of this ongoing debate.

“Buy Term and Invest the Difference” - The concept is simple. Since term life insurance is so cheap as compared to permanent life insurance, it is suggested that you buy it and invest the difference in higher yielding investments.

Pro’s:

  1. Cheap life insurance protection in case of premature death to protect your family. You can buy enough to make sure that your family’s lifestyle does not change when your income is suddenly stripped away., without breaking the bank.            
  2. The securities markets have returned an average of approximately 10% going back to the 1950’s. These returns are much stronger than the 4-5% that most permanent life insurance policies will pay. The growth of your invested money should far exceed the growth in cash values within your permanent life insurance policy.

Con’s:

  1. The name term insurance is derived for the period of time that you purchase it for. You buy it for a specific “term” usually 10 – 20 years. This insurance is cheap in your early years and gets progressively expensive as you age.
  2. It is unlikely that this coverage will ever provide a benefit. Penn State University studied term life insurance and publised their results in 1993. Here is what they found:                                                                                                      1.  More than 90% of all policies are terminated or converted.
    2.  45% of all policies are terminated or converted in the first year.
    3.  72% of all policies are terminated or converted within the first 3 years.
    4.  The average duration before termination or conversion is 2 years.
    5.  Less than 1 policy in 10 survives the period for which it was written.
    6.  After 15-20 years exposure, less than 1% of all term life policies are still in force.
    7.  Only 1% of all term insurance resulted in death claims.
  3. Term life insurance only offers one benefit – financial payout upon death.
  4. Investment returns are subject to fluctuation. The level of risk taken will determine the level of growth. The performance risk is transferred to the owner.
  5. Investment returns are typically quoted as gross rates of return. The net rate of return after capital gains taxes and transaction fees have been paid can be considerably lower.
  6. Many people do not have the financial discipline to “invest the difference”. If not automatically invested then the cost difference ends up in lifestyle expenses.

“Permanent Life Insurance” – This type of insurance is permanent and guaranteed. It is considerably more expensive than term life insurance but offers numerous additional benefits, other than a death benefit.

Pro’s:

  1. These policies have a cash accumulation feature. The cash values within the policy can be used as needed.
  2. These policies are guaranteed. The death benefit is guaranteed to be paid and can’t be taken away. If it is a participating policy, the dividends can not be taken away or reduced. Your premiums are guaranteed. They can not increase as you age or your health detioriorates.
  3. Tax deferred growth and tax advantaged distribution. The cash values grow tax-deferred and can come out tax-free via a policy loan.
  4. Dividends received are non-taxable.
  5. These policies offer a guaranteed internal rate of return typically 4-5%. This return is tax advantaged.
  6. Can employ the Infinite Banking Concept of using the cash values to self-finance. This strategy can greatly increase wealth by decreasing wealth transfers through interest, taxes and fees paid to 3rd party financial institutions.
  7. Offers a death benefit, life term life insurance, that will pass income tax-free to the polciy holder’s heirs. Unlike term life, it’s an instant and permanent asset. This asset can be used strategically as a living benefit (more on this next week).
  8. Since the death benefit and premiums are guaranteed it can be used in a number of strategic tax, business, investing and estate planning applications.

Con’s

  1. Permanent insurance is much more expensive and it’s not affordable for everyone.
  2. Some families & businesses do not need the level of benefits that are provided.

In review: As is the case whenever multiple products are compared, it boils down to cost versus quality. Both term and permanent insurance are excellent. They fit the needs of different people and groups. Suze Orman and Dave Ramsey should know this. It’s common sense. The distinct differences of each should be thoroughly presented. One size DOES NOT fit all. The needs of each individual must be understood and the proper solution applied to each.

Scott Storace

Tags: cash value, guarantee, infinite banking, investing, life insurance, liquidity, safety, tax benefits, tax-free, term insurance, whole life
Posted in Business Planning, Infinite Banking System, Insurance Protection, Investment Planning, Retirement Planning, Whole Life Insurance | No Comments »