Tag: fundamentals

https://www.youtube.com/watch?v=IAFHII8yBdQ

I can take this one. People are asking why don’t I do like an IBC policy for my kid, or they hear us talking about using this in lieu of the 5 29 plan, which I’m not a big fan of for their college savings or education. The big thing here is yeah, it’s cheaper to buy insurance per kid, but the problem is like a lot of these insurance payouts is based on how much money you’re making today, based on your pay stubs or salary or tax. And your baby, in this case, or a young kid doesn’t make any money so they can’t get very much. It doesn’t make much sense because you’re not going to get any too much of anything.

And I’ll just add, so that limitation of 50% of the parents total death benefits so what they’ll look at is they’ll look at the parents and see how much total death benefit the parents have. One example we recently just did as a parent had $1.6 million death benefit so that the child’s policy could be no more than an $800,000 death benefit. Their cost of insurance is very low. What that results in is a very small amount that you could contribute so that resulted in seven grand a year, max, that this person could put into that policy for the child in order for it to have the maximum cash value, growth and dollars, only over five years. Doing it over the over seven years, it would drop. They could only contribute four to 500 a year. Not really much in the sense of cash value and utilization of a cash value, but it does have a benefit that it’s a policy on the child.

My personal recommendation would be maximize policy on yourself. You’re able to maximize your dollar and have it grow throughout your life. And then also when you pass a death benefit, then can transfer a generation earlier and having it on your child. Your child can still access and use it and have access to the cash value and benefit from it that way, even though they’re not the ones being insured.

Sure. Yeah. Another con would be, the kid has access to the cash value where you have to be careful with that. Of course! And then another thing it’s very similar to people talk about, oh, I’m going to pay my kids a salary or put them on my taxes. And this is a big video or like podcast episode that people like use as clickbait just to sell views and listeners. In which is a strategy where it works, you pay your kids, really? What are you gaining from this? So you can pay five to $6,000, which is the standard deduction where you don’t have to file taxes, but like at a 20% tax  bracket did all this work and in the book effort for what, 1500 bucks. And it’s not worth the effort. And most of the people doing these IBC they’re putting at least 25,000, $50,000 a year. A kid probably maxes out or would you say four or five grand a year? It’s not worth it.

No, that was on a newborn. And I would say if you have a child who is putting an income, once they started putting in an income, decent income in their twenties or so. Yeah, for sure. I think starting policies on them would be a good. At that point, this example was for people asking for their newborn or a one-year-old and starting the policy now.

Well, but then the danger is that now they have access to it. Go buy whatever they want with it.

So the parents would be the owner until they’re 18 at least.

Got it!

Like when I thought about this the point is instead of a 5 29, it’s a way to fund the kids’ college. So if you’re putting in $7,000 from when they’re zero to seven, that you’ve put in 49 grand, what does that look like when they’re 18? Because it may well be more than enough to still fund their college education or whatever they choose to do at that point.

My recommendation would be that time period would be the same if you did a policy on yourself or when working. You’d be able to more at same amount or have it be more cost efficient policy and then access your cash value to do the same, even though it’s not in their name. But I don’t know if that made sense.

Yeah, it’s not like you’re saving much and just the time. Time is more valuable than money as I see it. So just get it in your own name and it’s easier to access too. I feel like it’s your retirement funds don’t need to be an a sole 401k self-directed IRA. It doesn’t need to be in a retirement account. It could be in your savings account. We can still call it retirement account.

Same thing here. Like your kid’s college savings doesn’t need to be in their infinite banking could be in yours. It could be an altoids’ tin in the backyard too.

https://www.youtube.com/watch?v=ECJ4QRdoahk

The underwriting process. This has been all over the place.

What’s involved?

There’s a medical questionnaire. They’ll be looking at based on the information and pride on that. They’ll be also looking at your resident history, your driver’s record. They’re really looking at how you answer those questions, which should be truthful, but based on those questions, determines if you have a follow on health exam or not. Also the ability to pull your current medical records from your current primary care provider.

And as far as how long that has ranged from a week and a half to having a policy delivered, approve and delivered to eight weeks. And the variable in there, most of the time is access to the ER providers, medical records. A lot of times, you know, that’s the unknown variable. A lot of us, the agent or even the client, has very little ability to help that process along that individual. Where it took eight weeks and we kept on calling the provider’s office. They said they had it. They said, there’ll be working on it. There are some back and forth, but that has been the biggest variable and really out of the hands of the insurance companies or the agent and so just be aware of that.

Income documentation. So we also had our recent lesson learned on that. You’ll hear the $10 million mark is kind of that magical limit where below that, as far as the death benefit of stated income documentation is not required. It requires a verification signed by the agent and the client below 10 million. However, if there is something that doesn’t make sense. So say for example, the client is a janitor per se and they’re trying to pull off $6 million death benefit policy. That’s going to raise a lot of flags and at that point, what we’re seeing is the underwriter’s asking for tax returns to show that even though maybe that janitor is married to a real estate investor and has a large net worth that they’re looking at really the annual income of the individual. And I even stated that person is married to someone who has multiple extensive real estate portfolio and then the tax returns, they’re going to look for the AGI on there or the gross income numbers to match the claim. So just be aware of that. We can kind of push the limits, but you’re applying for life insurance and you would want the companies to do proper underwriting because that’s the risk that they’re taking. Again. I think it can get frustrating, but basically part of the company, you can appreciate that they’re doing their due diligence correctly.

Oh, that example sounds really familiar. My wife is not a janitor. But yeah, what do you do with if a lot of the people are business owners and they’re really good at making their income go down to nothing? So they’re a really good passive real estate investor. And the ATI is like 25,000 until at that point.

Well, it had all the time we do what a cover letter, and we can present a story just ahead of time and it may all make sense. And as long as we can present that story, it’ll go through, I think doing it upfront that way is a lot more beneficial and believable than kind of after the fact than coming in and saying, oh, but this and this, that’s a big lesson learned when we have those types of policies that we’re trying to get through we really want to just create a strong story. We’ll write a cover letter, provide maybe some documentation ahead of time just to show, and they’ll be more favorable that way and more likely to go approved.

And then going back to the other question just a little while ago on putting the policy on your kid or their little baby, think about getting it on your spouse, especially if your spouse is a woman, because they live  longer than guys. They’re just cheaper to insure too.

https://www.youtube.com/watch?v=o6yYgxmYD8U

So there’s a question on reduced paid up. So a lot of times when we design policy, there is a certain desired funding period be it 5, 7, 10, or 15 years. To cut that funding period to the desired amount we do, what we call a reduced paid up. So that basically eliminates all future premium payments. It takes the existing cash value of the policy and it buys a single premium pay policy at that point. Now this is for policies are set older than seven years and it has to be beyond that the max limit or that seven paid look back. So it can be done at start of eight years or longer. It truly does eliminate all future premium payments. That’s good in the sense that it eliminates the expenses, but it does limit you in the sense of what you can now contribute to the policy.

It’s an option that you can choose to exercise. Again, you don’t have to exercise it, but if you don’t exercise it, then the policy premiums would be, do you know, until you exercise that reduce paid up most insurance products. But the typical ones we use are either 15 pay and pay until you’re age 95. Those are long funding periods, and premiums would be due unless you do a reduced paid-up. And just be aware that at least for the companies we work with doing the reduced paid up and beyond that the PUA limit, as mentioned earlier, that 10 times or that 9 to 10 really it goes away and at times put up only one times your base premium. So if your base trim is 10,000, you can just put another 10,000 in PUA beyond that at that point. So there’s some limitations. There are different companies in different products where if the desire is to have a long funding and that option and flexibility to fund the longer we would be using different products and not do a reduced paid-up.

https://www.youtube.com/watch?v=Ko_ASBr5ls8

Age, it does have a impact on the cost of insurance. But again, one way I particularly design it is that you’re minimizing the base premium anyway. It doesn’t have as much of an impact as one would think on the overall cash value performance of the policy. Again, a older person has less time for the compounding dividends to take into effect and grow in the later years.

But as far as the early or performance of it,  they’ll usually even a 60 year old. We can get break even point a year, five maybe or six, but most of them by year five or what breakeven point and still have growth there. Again, it’s just that it doesn’t have the compounding the years of the compounding for it to really take off on the later years. 

On this, just one little example when I was like 35 and my friend was 50. We both did the same policy just to see what the numbers would look like. Like with a hundred thousand dollars per year, we looked at like the cash value. The first year we got back and it was pretty simple, I won the bet. Because I said it wasn’t, it didn’t make much of a difference and it didn’t, it was pretty negligible. But I think if he smoked cigarettes, then that would have be more noticeable. Yeah, for sure.

Yeah, that is true health. And again, I link touched on it earlier. You don’t always have to be the insured person within your family, a spouse, a working child. You can always, maybe have them be the insured person versus yourself, if you’re older or you have maybe some underlying health conditions.

And to me that didn’t make sense in the beginning because you know, these are important factors, but then again, the way we’re configuring that it’s not for really the depth payouts. When you think about like that, this makes sense it’s for more, for the liquidity of putting money in here and withdrawing it right out.

https://www.youtube.com/watch?v=gtYyINEZSK0

Policy loan rates. There’s a lot of discussion on this for the insurance companies, variable loan rates. Most of them are all tied to the Moody Corporate Bond Index Rate. Again, each company has also a floor variable interest rate. Some of them are at 4.5 or 5% as a floor, as a lowest total goal. And the corporate bond rate, I think right now is maybe like a two point something percent, so that you’ll see that variable interest rate loan interest rate has been there at the floor for awhile.

We anticipate it to stay there. Again it’s higher than what you can get at a bank. There is the collaterized cash value loans are gaining his popularity and there’s a bunch of people in the FOOM doing that so that’s good. The company does declare their variable rate annually, and I know it becomes effective on your policy anniversary date.

And it can go jump higher than 0.5% per year, but it can drop. So say the interest rate jumped up to 8% for some reason. Your variable policy interest was at 5%. It can only go up to 5.5% in that year. And then each year, when you 0.5%, if you were at a higher interest rate, said 8% and it dropped to 4%, there’s no limit as far as how low it can drop other than the company floor. So it could drop all the way down say the floor of 5%. If it was, you were at eight, that’s the limitations there.

And I think a lot of people outside the family office group, they don’t realize this stuff. It was new to me. You guys, that’s how I have this group because you guys find some cool stuff. Personally, I don’t know if I’m ever going to go to a third party bank, even if it is for 3.5% interest rate, I might just be, I like the convenience of paying the 5%. Well, I guess if you’re starting to take a loan of more than half a million dollars, it adds up. But personally, I don’t know to me, like going to another bank signing over your life insurance, like maybe just I haven’t done it and I think it’s difficult. I haven’t done it yet. That’s where you can get extra returns out of this thing by doing that.

And when you do it, do you lose the asset protection part of it if your state qualifies for asset protection? Yeah. I see what the next slide touches on some of that.

https://www.youtube.com/watch?v=Cb8xM46tqSY

The collaterized loan has a lower interest rate. And then just in red, again, it’s not necessarily huge cons. It should just for awareness, but you need to apply it. It could show up on your credit report from some people are being able to pull it out where it’s a business loan so it’s not showing up on their personal credit report. I’ll just highlight that. It just made sure. You need regular payments that are set by the bank and most likely, if you put up your cash value as collateral, you will lose that asset protection because now it’s seen. And if it’s there for creditors to look at. I’m not sure if you’re putting it up as the business, but what I mean, it’s usually once you collaterized portions of your cash value then it no longer falls under the asset protection caveat for the state.

I wonder if the bank is like first name or not so if there’s a creditor they’re coming after you, if they got to get aligned to the bank first, but I don’t know. Good question. I think that’s, that’s the trade-off right? When you save a percent, one and a half percent interest rate, that’s the trade-off. And you’ve got to ask yourself if it’s worth it.

For those of you guys, and this is new to you guys, I have a spreadsheet of third party loan vendors in the discord channel. There’s like about how like a dozen of these things, thanks to Nash Eric and Yang, they did the labor work for our group to figure out who were the people to work with, what the latest terms interest rates were. So we had that, that PDF for you guys in that discord channel, the IBC/whole life is where to pull that from.

And just for awareness, usually the amount of cash value you need I think the minimum has dropped maybe not an 80,000, it was hovering around a hundred thousand. A lot of the banks were recording at least a hundred thousand cash value to be put up as collateral. But I think someone’s got an $80,000 one recently.

And if we just took it from the IVC policy, you may just cannibalize from the policy. Whereas if you collateralize it and get a loan, you need to pay back the principal. Right?

Yeah. There’s usually a regular payments mandated by the bank and basically you need to ask permission. So even if you were to, um, take out say an $80,000 collaterized loan, and then you dump more P waves into your policy and you boost that cash value up now 220 and you want another $20,000 in loan just by policy loan, the bank will have to sign off on a lot of those actions or any policy actions going forward while the loan is outstanding. The bank wants to protect their assets, but don’t have a lot of say to what you do on your policy though.

If he got like half a million billion dollars of cash value in there, 1.5% for years, a lot of money. And I think what I’ve seen, some people do is they’ll buy a house cash and then not get a, a home loan because they can’t qualify for a non-qualifying mortgage. Especially if they’re a business operator who shows very low income or good real estate investor who has variable, no active income, a lot of passive income. This might be a way to use exactly what the same sense, right? Bang, cram yourself, you get a policy loan for the house or you buy the house cash but you take the loan from the infinite banking policy that you have. You can get creative with this stuff. Yeah. And just so when you take a policy loan, the interest you pay is not going back to yourself that there’s some confusion there. It is going back to the insurance company. They’re basically, collateralizing your death benefit, your cash value. Remains untouched whether it’s recognized or not, that’s more of a dividend treatment on the cash value, but your death benefit is collateralized. Your compounded growth is not interrupted within your policy.

And some people don’t like the feeling of these interest rate payments, stacking up on you. And for those people, I would say get over it. And it’s just an emotional thing! But if it really bothers you, maybe just set aside a certain year’s payments. Pay it back once a year, or just make sure you have it on the side, in a separate account, for that purpose. It’s another way of dealing with it. But it’s just truly an emotional things you said earlier that the policy kind of cannibalizes itself.

How soon can you take out a loan? So I would wait to be safe, even though you fund the policy probably a day or two it’ll show up in your account and you’ll have it’ll show up as available loan amount and you could take out a loan. What happens in the most Insurance Companies that it takes about 10 days for the funds to truly clear within their system.

Within that 10 days, if you pull out a policy loan, it raises some flags and there’s some additional documentation possibly people need to provide. It’s gotten a lot stricter in the case as of money laundering and fraud, maybe on the rise. Just be aware, even though it shows up in your policy as available.

To be safe, I would wait that 10 days or be prepared to have the agent verify that you, as the policy owner, are aware of the loan, verify your bank account.

And things of that sort when we’ve had some members or some clients like within two or three days pulled out the loan and it just raises some flags within the insurance company.

Which just means they could freeze. It just makes it a little more headache to get it frozen. I just went through this last week. I was trying to get a loan from one of my new policies and I had those send, sending a letter with a blank check. And some like bank statements to go through all that nine yards, which is annoying to get it into there system. And then I had to call it request spot so it takes longer than you think.

But luckily it’s not as hard as taking money out of your broker or your retirement funds. That’s the hardest thing ever!

Once everything is set up, it is pretty smooth sailing. It’s just that initial loan, or if you’re on a policy anniversary, and then you just funded it and you’re pulling out the loan right away again, it’s just those two times there’s going to be, I think a lot of scrutiny if you don’t have your bank account set up.

I’ve got two policies at two different companies. One of them, I can take withdrawals over $15,000 over the phone. I always just call them up. When I send in a check or do a direct deposit from my bank account, we redeposit the funds to pay back my loan. I usually just call them and I specify what it’s going to. Is it going to paid up riders or  they are going to my base because they have to differentiate for them. The other one, I have to do like a signed form and email it in all different ways.

https://www.youtube.com/watch?v=hGuZByH2fUE

We’re getting to your guys’ questions. Now, if you guys want to take them to the chat more.

Ronnie, and I’ll go look up the true, exact definition, but with pen, and I’ll get back to you on this one.

But that’s the first I’ve heard of that too. And that makes sense. Every carrier has their different nuance. I think that’s where it’s good to talk to each other and to say, why would I do one or the other at the end of the day? I think they’re all the same.

https://www.youtube.com/watch?v=o01WDWtr9pg

Alex, are you still there? That’s his policy.

Yeah. Alex, just be aware that you’re not paying back yourself, that 5% interest is going to the insurance company. You may get some small trickle of that based on company’s profits gets paid back. That’s part of this goes to the dividend rate that you receive, but the inch that 5% interest is not going to you directly.