Posts Tagged ‘whole life’

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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 »

Life Insurance Industry Shows Strong Gains in 2009

Saturday, January 2nd, 2010

images2 Life Insurance Industry Shows Strong Gains in 2009 Despite considerable losses due to the financial crisis in 2008, a recent press release ( http://www.conning.com/pressrelease-detail.aspx?id=3508 ) from Conning Research estimates 2009 industry net income at $16 billion.

Based on the report, the growth in life insurance products has remained stable while annuities have been the industry stepchild posting $4B in losses.

What makes life insurance an attractive product these days? Well, the safety and guarantees are definitely getting a lot of attention. Guaranteed tax-deferred growth of cash values, guaranteed premiums that won’t rise, a guaranteed death benefit and dividends that are guaranteed once declared are all very assuring. Sexy, high rates of return in the securities markets sounded great a few years ago but the volatility over the past few years has left many looking for higher ground. Would you prefer to hope that your child’s education is paid for or do you want to know that it’s covered? If you weren’t here tomorrow what would your family lose? Are your plans for them guaranteed to be fulfilled without you?

The many tax benefits are very enticing to those planning their retirements. They’ve seen their 401k’s and IRA’s cut in half. The ones that have deferred their tax liability are realizing that their accounts still have a large haircut awaiting them from the IRS. So, they are still looking for the tax-deferred growth but now want the tax-free distribution that a life insurance policy can provide. How would you feel if your nest egg was cut into 3 equal pieces and the IRS took one away from you? Are you happy to give away this money?

Liquidity, use and control are another big benefit that my clients are talking about. They want more control 0f their funds. They want to use these funds in any manner they dictate without having the IRS dictate how and when they can use these funds…and still get taxable benefits. How do you feel about having the IRS as your financial partner?

These benefits are being sought by individuals, families, professionals and business owners. But they are also being sought in large quantities by banks and corporations. The 2009 numbers for bank owned life insurance (BOLI) and corporate owned life insurance (COLI) are not out yet but I expect an increase similar to last year of about 5%. Banks alone purchased $126.1 billion in life insurance in 2008.

The past few years have been tough for many people. Many questions have been raised, perspectives have changed and financial courses have been altered. Through it all, as was the case during the Great Depression, the life insurance industry has once again remained strong. It’s the night-light on a dark stormy night! It may not be the only tool you’ve got in the box but there are many reasons why it should take up a good amount of room there.

Best wishes to you and yours in the New Year! May it be filled with hearty laughs, fond memories and tremendous personal achievements.

SCOTT STORACE

Tags: cash value, guarantee, liquidity, safety, tax benefits, tax-free, whole life
Posted in Financial Advice, Retirement Planning | No Comments »

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 »

Whole Life Insurance Provides a Banking Factor

Tuesday, November 24th, 2009

A great reason to have whole life insurance in your plan is the banking factor. Whole life insurance policies have a cash value account and a policy loan feature. There are no stipulations regarding the use of a policy’s cash values. You don’t have to qualify to use your own funds. No one will ask what you are using them for. You have full liquidity, use and control of the cash values in your policy. In fact, the policyholder has the first right to the cash values. By taking a policy loan from yourself, you are able to use the funds as you see fit in your personal life and business. Whole life insurance policies do not have self-dealing laws like IRA’s.


When we use these policies for banking purposes we actually promote and endorse self-dealing. Why? By borrowing from yourself and paying yourself back in lieu of borrowing from a traditional bank, we become the banker. We control the terms of the loan. More importantly, instead of paying interest to the bank, we recapture that interest and pay it back to ourselves. The money that flows out to pay your loans is getting paid back to you. It’s like pulling it from your left pocket and placing it in your right. As your policy, or personal bank, grows you can begin to self-finance virtually anything. The opportunities are infinite. Since whole life insurance policies are structured differently than bank loans, the principal is reduced quicker when comparing the same loan terms. A loan that gets paid off quicker means that less payments are made. When less payments are made more money is saved. As the banking cycle is repeated within a whole life insurance policy, the cash values, dividends and death benefit all grow. Therefore, this feature has become the focus of my clients.

Scott Storace


Tags: cash value, infinite banking, whole life
Posted in Infinite Banking System | 3 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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