Archive for the ‘Whole Life Insurance’ Category

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Protecting Your Business with Life Insurance

Sunday, January 24th, 2010

going out of business 300x175 Protecting Your Business with Life InsuranceMany business owners are masterful technicians in their field of expertise. In their angst and excitement to get their business launched they fail to look down the road. Why? There are many reasons but it’s extremely important to plan the business divorce before the wedding.

What would happen if you could not run your business? What if your partner suddenly perished? How would the business operate? Who would fill the voids? Do they have the expertise to do what you or your partners do? How would the assets be split and passed to the heirs of the deceased partner?

Preparing for such an occurrence is called succession planning…when a business will be transferred from one to another. It’s important that the proper funding for a succession be established upfront. Insurance is a great way to achieve that with minimal out of pocket expense. Whether the peril is disability or death, insurance can protect the key people in an organization and therefore ensure that the funds are available to keep the business moving forward in the event of a catastrophe.

These funds can be used to buy out a partner’s shares via a buy-sell agreement. The remaining partner(s) will then be able to maintain control of the business and keep it moving forward. Without this insurance it’s possible that the business would have to be sold to pay the deceased partners estate or the remaining partner(s) would have to buy out his ownership with personal funds or loans. This can spell disaster for the business.

This is why it’s important to plan the business divorce before the wedding. Sound business, financial and estate planning can eliminate setbacks before they occur.

In addition to the business planning benefits, whole life insurance can offer your business a highly liquid source of cash and tax advantaged growth for the partner(s). The cash values can be used like a business line of credit. Borrow what is needed, pay back the loan with interest and achieve a tax deduction for the business and an individual gain.

In the future we will explore additional examples of business, estate, financial & retirement planning using life insurance and other inurance products.

If you have a specific question or topic that you would like me to address please contact me!

Scott Storace

Tags: cash value, life insurance, liquidity, tax benefits, whole life
Posted in Business Planning, Financial Advice, Whole Life Insurance | 1 Comment »

Bob the Baker or Bob the Banker? -The Infinite Banking Concept In Action

Sunday, January 17th, 2010
 
Baker 150x150 Bob the Baker or Bob the Banker? The Infinite Banking Concept In Action
“Bob the Baker” or “Bob the Banker?”

I want to illustrate the power of the banking concept as compared to traditional financing. Let’s assume Bob The Baker wants a $25,000 loan to buy a new oven. His local bank offers him the $25,000 at a rate of 10% for 7 years. Bob agrees to this and the following month begins making payments of $415.03. He makes these principal and interest payments monthly for the next 7 years. When the term of his loan is completed, what is he left with? Well he now owns the oven outright. But he has transferred every penny to the bank. This is money he can’t get back. For the opportunity of borrowing, he has paid interest to the bank of $9,862.47 in addition to his principal loan of $25,000. Therefore, he has shelled out a grand total of $34,862.47.

How would this change if Bob had properly funded a whole life insurance policy for use as his own banking system? Let’s look. To start we need to know a little more about Bob. He is 45 years old, in good health and living in California. He is considered a standard/non-smoker when being rated by the insurance company. These assumptions allow us to determine the characteristics of his policy. Now that we have done so, let’s make the same assumption that Bob will borrow $25,000 from his policy, or personal banking system, and pay himself back at the rate of 10% over the next 7 years. What happens? The payments are still the same amount of $415.03, but instead of taking 84 months to pay back the loan it only takes 68 months. That shaves off 16 monthly payments, saving Bob $6,640!

Now what is Bob left with and who has Bob’s money? He does! He paid himself back the $25,000 in principal along with $3,252 in interest. He has all the money that he would have spent but rather than transferring it to the local bank he has put it back into his pocket. He has effectively earned a 26.56%+ rat eof return for himself without taking any additional risk.

Where can you find a 26.56% rate of return today with minimal risk? In addition, every payment that he makes back to himself is available to be used immediately. He can get multiple turns of the same money…just like a bank does.

There are many variables which will make each scenario different from the next. As you can see though, by changing HOW you finance instead of WHAT you finance you can reap significant financial benefits.

Scott Storace

Tags: infinite banking, whole life
Posted in Business Planning, Financial Strategy, Infinite Banking System, Investment Planning, Whole Life Insurance | 2 Comments »

3-Legged Stools: The Pitfalls of UL & VUL Policies

Sunday, January 10th, 2010

stool 1 sm 3 Legged Stools: The Pitfalls of UL & VUL PoliciesA 3-legged stool is great unless one of the legs is not aligned with the others. If they are not in perfect harmony then you’ll be severely off balance and tip over. This analogy describes some of the features of Universal Life(UL) and Variable Universal Life(VUL) policies.

These policies offer flexibility: flexible premiums, death benefits that can change, some control in how your funds are invested and more. Sounds great on the surface but the long-term question should be, can the stool stay balanced? To see we need to know what each leg of the stool is.

  1. Input of Premiums – The first leg is your input of premiums. UL & VUL policies do not require an annual premium to be made. In order to guarantee that the policy will not lapse you must continue to input premiums.
  2. Interest Earned – The interest earned on UL and VUL policies can vary widely. Life insurance companies tend to invest conservatively in order to ascertain the benefits they have guaranteed. Variable Universal Life Policies allow the policyholder to exercise some direction over the investing of the funds within the securities markets. Performance risk is then transferred to the policyholder where traditionally that risk was retained by the insurance company.
  3. Internal Costs - The insurance company has costs that get passed through to the policyholder in UL & VUL policies. The largest of these is typically the cost of insurance. As the cost of the internal term life insurance rises, that cost gets transferred to the policyholder. Again, traditionally this risk was retained by the insurance provider. Other costs include monthly administration fees, sales charges and monthly premium expenses. These expenses vary widely from policy to policy.

These are the legs but how can they get mis-aligned?

  1. Market Fluctuations – A typical illustration will show a rate of interest that must be earned every year the policy is in existence. But the market is not perfect. Underperforming years require greater performance in future years to breakeven. For example a 25% loss on $1000 leaves a balance of $750. In order for that $750 to grow back to $1,000 requires 33% rate of return. Market fluctuations reduce the interest earned and reduce the cash values within the policy. To prevent a lapse in the policy, additional premiums will have to be deposited. With a whole life policy a reduction in interest earned effects the cash values but with a UL policy it can also reduce the length of coverage.
  2. Policy Loans or Cash Withdrawals – Reducing the cash within the policy reduces the pool of funds that are used to pay the internal costs. Couple a need for cash with a period of reduced interest earnings, like we have seen in the past few years, and it can spell disaster for the policy. When the well runs dry it requires additional infusion of premiums.

Once these policies are in the hole, it gets pretty tough to dig them out.

So if you’re looking to buy a stool, look real hard and get some help. Many of the benefits also come with additional risk. And be sure to look into participating whole life policies. You’ll find all the traditional benefits, with added amounts of safety and peace of mind! After all how much flexibility should a stool have anyway?

Scott Storace

Tags: cash value, guarantee, life insurance, safety, whole life
Posted in Financial Advice, Financial Strategy, Whole Life Insurance | 1 Comment »

Retirement & Business Planning for Professionals

Thursday, December 24th, 2009

images Retirement & Business Planning for ProfessionalsIf you are married and make a combined income of $176,000 or more you can’t contribute to a Roth IRA. So where do the doctors, attorneys, dentists and business owners get tax breaks on their hard earned income when planning for retirement?

One option that the IRS offers is the SEP-IRA. This is for self-employed business owners only, which eliminates those professionals who are employees of a larger firm. The SEP-IRA allows a business owner to defer the tax on up to 25% of their income with a max of $49,000/year in 2009. The income tax is deferred until the time of withdrawal. So, not only do you defer the tax but you also defer the tax payment.

             The Benefit: Tax deferred growth of your money.

            The Cost: Tax deferred liability on your growth!

Do you know what tax bracket you’ll be in when you retire? Do you know the government tax rates that will be imposed at that time? No? Well that might cost you! Imagine paying 35%-40% income tax in the future when you could have paid 25%-30% today. Sound like a benefit to you? Tax rates and brackets are variables that we don’t control and the possibility of this scenario is very real for high income professionals and business owners.

When planning for retirement many people are told that they should expect to be in a lower tax bracket because they will be earning less. Don’t count on this. It’s a poor mentality and terrible financial approach. It’s like striving to lose! In addition it gives people a false sense of security that their income will be sufficient. But retirement should be the time to live out some dreams and travel the world. In addition, it will also be the time when health care and long-term care costs begin to mount and tax deductions are minimal. The dependents are long gone and the home has been paid for.  

Instead of hoping we’ll be in a lower tax bracket we need to plan our finances so that there is no tax bracket. At a minimum we want to reduce the tax burden we face. The good news is that we can control where we place our money. Ideally, professionals and business owners want:

  1. Tax Deferred Growth
  2. Tax Free Distributions
  3. No Limits on Contributions
  4. No Adjusted Gross Income Limitations
  5. Full Access, Use and Control of Their Money
  6. Competitive Internal Rates of Return
  7. Safety/Guarantees
  8. Unlimited Investment Options

What vehicle provides all of these and more? Participating Whole Life Insurance. In addition to the benefits listed above, there are numerous estate and business planning uses for life insurance. Partnerships use life insurance to fund buy-sell agreements. Corporations use life insurance to pay benefits and attract top personnel to their companies. It’s not just for protecting your loved ones in the event of a sudden death.

When planning for retirement, planning for your business or planning your estate it’s important to remember the benefits of participating whole life insurance. It’s so much more than death protection.

Scott Storace

Tags: guarantee, life insurance, tax benefits, tax-free, whole life
Posted in Business Planning, Financial Strategy, Infinite Banking System, Retirement Planning, Whole Life Insurance | No Comments »

Life Insurance – The Love Product

Thursday, December 17th, 2009

th 4518636737 Life Insurance The Love ProductWhy do we insure our valuables? What makes a car, a wedding ring or your home worth protecting? Clearly, they have a financial value. You would suffer a financial loss if they were damaged or destroyed. Insurance will make you whole should a loss occur. I use the word should very specifically. The odds of losing your home are very small. Even car accidents are relatively rare.

So why don’t many people protect their largest valuable? Ask yourself this: If you had an ATM in your home that dispensed the money you needed to survive, would you insure it? Clearly your family would suffer a loss if it were destroyed. That cash machine is an analogy for our lives. The economic value of your life is enormous. Consider your earning potential for a moment. Consider how the loss of that earning potential would affect your family’s lifestyle. Would changes have to be made? Absolutely!

Death is guaranteed. Loss of life WILL occur whereas the loss of possessions might not occur. Yet we insure less valuable items that we are less likely to lose. Does that make sense?  It’s backwards to me.

Life insurance is a love product. It products the ones you love in times of loss. A death in the family brings new burdens. From the financial cost of the funeral to the loss of current and future earnings, a death can devastate a family. Is that the legacy you would like to leave behind?

When a death benefit check is issued to a family member it lets them know that there lost loved one cared enough to protect them. That person was thinking about the future and planning for their family. A whole life insurance policy is the only product that guarantees what you want to have happen will happen. What else can do that? So if you love your family and want to protect them, then insure your life.

 Scott Storace

Tags: guarantee, life insurance, whole life
Posted in Financial Advice, Whole Life Insurance | No Comments »

Investing & Whole Life Insurance: The Speed Limit of Success!

Thursday, December 10th, 2009

tortoise and hare 208x300 Investing & Whole Life Insurance: The Speed Limit of Success!Remember the parable of the tortoise and the hare? Slow and steady wins the race! Surely you’ve heard the expression that “It’s not  a sprint but a marathon!”. Both effectively portray the discipline required to get ahead in a long endeavor. Financial security and independence is a long endeavor. But who wants to wait? Whatever happened to slow and steady?

Over the past few decades we’ve been indoctrinated to believe that it’s now or never. Get it while you can. Live for the day! Get rich quick schemes bombard the television. Reality TV shows with like “Platinum Babies”, “MTV Cribs” and “The Real Housewives of (pick a city)” depict opulent lifestyles as if they were the norm. This is what most strive for as they endeavor to keep up with the Jones’.

Most recently I was reading about the country of Dubai who, on a massive scale of debt leveraging, has built entire islands designed as Palm Trees and one series of islands that (when viewed from space) looks like the planet Earth. They are also building the world’s largest skyscraper. Sounds great…if you can afford them! It is now estimated that there is a 35% chance that Dubai will default on these debts causing a massive economic wave that will impact economies worldwide. What a shame. It’s a crashing house of cards!

Whether as individuals, corporations or countries it’s important that we change our view from instant gratification and fast money to one of slow and steady incremental success. The stories we hear of instant and overwhelming success are few as compared to the relative population. And I would argue that this success is not instant, as portrayed. We did not see the hours of hard work and dedication that Michael Jordan and Tiger Woods spent honing their skills. What about the patience and sound financial practices of Warren Buffett. His financial philosophies and subsequent wealth were developed over decades…not days.

That’s one of the reasons I love participating whole life insurance as a long lasting, predictable financial tool.  It’s safe and guaranteed, yet offers many benefits that can’t be found anywhere else. The fallacy of whole life insurance is that it’s only to protect against financial losses in the event of death. This could not be further from the truth. By utilizing tax-free policy loans we can act as our own bankers and self-finance our personal lives. By borrowing from ourselves and paying ourselves back with interest (just like we would had we borrowed from a bank) then we keep the money that we would have sent to another financial institution. We grow our own bank slowly and steadily by cutting out the middleman. We can start small with home repairs, build it up to financing a car and maybe even a house one day. And when we are done we can have a tax-free stream of income at retirement and still leave a nice inheritance to our loved ones when we pass.

It might not be as sexy as building the world’s largest skyscraper or having the latest handbag that the reality stars are carrying. That’s for sure. But life is rarely as we see it on TV. Slow and steady is the way to go when it comes to your financial freedom and participating whole life insurance is a valuable tool that you should have on the journey. After all, Rome was not built in a day!

Scott Storace

Tags: cash value, life insurance
Posted in Financial Advice, Financial Strategy, Whole Life Insurance | No Comments »

Whole Life Insurance Provides Guarantees

Wednesday, December 2nd, 2009

The third and final reason to love whole life insurance is the guarantees. Let’s face it, in tough economic times everyone likes a little safety. Even in boom times, it’s nice to know that something is guaranteed. Whole life insurance offers guaranteed growth of cash values. Dividends, once declared, can not be withdrawn or reduced. And your death benefit is guaranteed to be paid to your beneficiaries upon your demise. Your premiums are locked in and guaranteed never to increase like term life insurance premiums. And once you are approved for a whole life insurance policy you never have to re-qualify. Therefore, your benefits can not be stripped away due to a change in health. The key behind all of this is the contract.


A life insurance policy is a contract between the policyholder and the life insurance company. As long as the policyholder performs on their end of the contract by paying the required premiums and keeping the policy in-force then the life insurance company must provide the stated benefits. It’s that simple. And life insurance companies are the safest financial institutions around. They are fiscally conservative and are regulated to maintain high reserve requirements, commonly 1:1. For every dollar loaned there is a dollar in reserve. This is atypical of banks and other institutions who were extremely leveraged. While other institutions fail, life insurance companies remain strong and healthy. Whole life insurance is truly the only product that can guarantee what you want o have happen…will happen! That’s why it’s commonly called permanent life insurance. Unlike some of the features of term life and universal life policies, whole life is guaranteed. In times like this, safety and guarantees are comforting to my clients. They know what they have and they know it won’t be taken away or reduced.


Scott Storace

Tags: guarantee, life insurance
Posted in Whole Life Insurance | No Comments »

Whole Life Insurance Provides Great Tax Benefits

Wednesday, November 18th, 2009

Whole life insurance is one of the last great tax loopholes. It provides a variety of tax shelters to almost everyone. I say almost because qualifying is based on personal health. Where else can you find a financial tool that allows your contributions to grow tax-free with the ability for your distributions to come out tax-free? Add to this tax-free dividends and a death benefit that will pass to your beneficiaries free of income tax. There’s nothing else like it. A Roth IRA allows your contributions to grow tax-free with tax-free distributions but it does not provide tax-free dividends nor does it pass tax-free to beneficiaries upon death. Add to that a litany of regulations surrounding the liquidity, use and control of a Roth IRA and it’s easy to see why a whole life insurance policy makes more sense for my clients.


It’s even possible for some to make tax-free contributions into a whole life insurance policy! Taken together these tax benefits can amount to an enormous savings in personal wealth and thus makes whole life insurance one of the top tools of estate planners. Instead of giving more tax dollars to the government, whole life insurance allows you to keep that hard earned money in your pocket.


Scott Storace

Tags: tax benefits, tax-free, whole life
Posted in Whole Life Insurance | 1 Comment »

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