I want to share with you items to consider before investing in a 401k. Some of those items are the tax ramifications and the control over your money you will be forfeiting. Uncle Sam makes the decisions on when you can access your money without penalty, what the penalty is for early withdrawals, the taxes you pay, the required minimum distribution (RMD) amount, when you must begin to take the RMD and more… Watch my short presentation below for more information and view a full expo by both Frontline and 60 Minutes.
There are 11 types of IRA’s; that’s right Eleven! But do you know about the Self-Directed IRA and what the benefits are?
Most investors mistakenly believe they have a “self-directed IRA” when in fact they have one that limits their choices to a few investment types. Within your plan, you can choose stocks, mutual funds or bonds. And while you may have hundreds and even thousands of choices of where to put your money inside that account, chances are you won’t be able to invest in nontraditional retirement assets — especially if your IRA or 401(k) rollover is with a traditional brokerage house.
So just what is a true self-directed IRA? It’s an account allows you to invest in many other options within your IRA, including:
- Rental real estate
- Fixer uppers to resell at a profit (flip)
- Private loans made at higher interest rates to other investors
- Discounted private notes
- Tax liens or tax deeds
- Privately held companies and startups
- Precious metals
- Leases and lease options
- Straight options (real estate options, not stock options)
Such investments receive the same tax treatment as more traditional IRA assets. Any tax due is deferred until withdrawal, typically at age 70½, when your are required to start drawing down your savings, or possibly sooner.
This is an account for hands-on active investors with unique knowledge of some of the asset classes in the approved list, not for a “set it and forget it” investor.
By using this type of account it is possible to make some sizable returns from a relatively small amount of money. Here’s an example:
You have an opportunity to buy a rundown house from an estate that would like a quick sale. You determine the house is worth $200,000 — after you have spent $40,000 in upgrades. You contract to purchase the property for $120,000. But lacking the $160,000 to proceed with the sale, you enlist a partner who agrees to provide the full amount, provided you handle all the details, including closing, rehabbing and reselling the home.
You further determine that you would like your share of the profits to go inside of your IRA for the obvious tax benefits. You only have $10,000 inside your IRA with which to invest. The proper play given these set of circumstances is to have your partner buy the property in his name or an entity he controls, such as a limited liability company. You enter into an option agreement to purchase half ownership in this property. You pay $100 from your self-directed IRA and fill out option paperwork and give all the papers to your plan administrator.
This deal now moves forward, and the property is rehabbed and ready for sale in 60 days and sells and closes quickly for $200,000. You have $10,000 worth of sales and holding expenses, netting a $30,000 profit on this deal in five months. The actual title owner to the property agrees to pay you $15,000 for you to close out your option. This $15,000 is a return on the $100 option investment and is deposited back inside your IRA tax-deferred or tax-free (for a Roth IRA).
Your investor put up $160,000 and received $15,000 for a five-month investment. This represents more than a 20 percent annualized return on his money, which is pleasing to almost every investor. If he used his IRA money for this investment, then his profit would be tax-deferred as well.
Here’s another example: An investor from New York became aware of the self-directed IRA and used some of his IRA to acquire four rental homes in Metro Detroit. Each home was purchased for around $55,000 and rents for about $900, and the cash flow goes back to the IRA on a tax-deferred basis. If he sells these for big gains years from now, that profit will also be tax-deferred.
Be warned: There are also some prohibited investments with your IRA (see IRS Publication 590-B):
- No loaning of money to yourself, your spouse or any family member in your direct linear family chain.
- No investing in collectibles.
- Your IRA can’t personally guarantee any loans in which it borrows money. This means that any money borrowed by your IRA must be “non-recourse” funds, which means that only the asset can be put up for collateral and may be foreclosed upon for nonpayment. The creditor may not file suit against the IRA for any shortfall in the loan goes delinquent.
And You Don’t Even Know It
The first and biggest “wealth drain” is taxes.
Our tax system is designed to penalize hourly and salaried workers while rewarding entrepreneurs and business owners. Salaried workers pay taxes based on what they gross, while business owners pay taxes based on what they net. To that end, most people think Fortune 500 companies getting something over on little guys. Keep in mind, you don’t have to be a big business to get great tax advantages. Even startups get huge tax benefits. So rather than complain, maybe you should run a business from your kitchen table
To qualify for tax deductions in that business, the IRS says you must intend to make a profit. When that standard is met, you automatically qualify for dozens of tax deductions that you don’t get as an individual. Most losses and startup expenses can be written off against other income from your job (limits apply, so get a good business CPA to work with you). Realize that nobody else (not even your CPA or tax preparer) cares how much you pay in taxes, so it’s your job to understand how the system work and how to use it effectively.
Losing the Chance at Compound Growth
Another set of huge wealth drains are market losses on investment capital that you control. When a stock or a piece of real estate drops significantly in value, it could take years for you to get back to even. And, of course, there are no guarantees that it will come back during your investment lifetime. The less capital you have invested, the less you can benefit from the power of compounding growth.
If the compounding curve of your money is broken by market losses or premature withdrawals, it has a massive effect on your final pool of wealth. For example, if you were offered a job that lasted only 36 days and you had two choices on the pay plan, which one would you take? (A) You could be paid $5,000 per day at the end of every day, for a total of $180,000. (2) Your second option is to be paid one cent starting on Day One, but your pay would double each day — be compounded by 100 percent — and payable at the end of those 36 days.
If you jumped at the $180,000, you missed the power of true compounding of money. If your coworker doing the same job chose the compounding penny, he wouldn’t be a millionaire. After 36 days … he’d be a filthy rich multimillionaire with a final check of $343,597,384. Obviously, your investments won’t experience such rapid (or consistent) compound growth, but do the math —
the power of the compounding curve is strong over time — if you don’t break it with big losses (which you can’t always control) or withdrawals (which you can).
Money Lost in Fees and Interest to Banks and Financial Companies
The next massive wealth drains we face are interest and fees paid to banks or finance companies. Money-lending has been around for thousands of years, and any business model that’s lasted that long is a winner — for the business. But when you’re on the borrowing side of the transaction, it’s a wealth drain, especially if most of your borrowed money is spent on depreciating assets
Now, people will tell you that if you can borrow money cheap and invest it in something that has a higher rate of return than the interest rate you’re paying, then you’re using leverage properly. That can be true, but those attempting such a move should be aware of the caveats. Try this simple exercise: Add up all the money you’ve paid out over your lifetime in monthly payments. Then compare that total to the amount of money you have saved for retirement and see which one’s bigger. (If you’re willing, we’d love to hear about your results in the comments section below.) Then think about how to be a lender, and not a borrower.
Depreciation of Vehicles and Other Large Assets
Another massive wealth drain comes from the depreciation of cars, boats, equipment, appliances and most other large assets we buy. Most people will lose more money on cars during their lifetimes than they’ll ever save for retirement, let alone all the other depreciating assets they’ll buy. But there’s a way to make money on these items.
Think of your financial life as a big pie. Don’t fall for the old magic trick and focus only on what’s happening to your one slice of the pie (i.e., your investment gains or losses). Instead, pay attention to the whole pie and put a stop to your massive wealth drains.
There are many myths about life insurance that most people unfortunately consider as facts. Most of these myths are perpetrated by Wall Street and people who want every nickel of your money in the market under their management. The first huge myth is “buy term and invest the difference” and this one is so big it required its own article to debunk.
Life insurance is a lousy place to put money
What I described in previous articles about designing policies is very true but there are also some other facts that blow this myth away. Simply ask yourself this question, if putting money into life insurance contracts is such a lousy place to put money, why do the biggest and most wealthy institutions put loads of their own money into life insurance products? Major Banks, large corporations, and family dynasties have been putting boat loads of money inside these kinds of policies for generations. Are they that stupid about money? Not hardly. They are very savvy with money which is why they use life insurance contracts and other products to grow and protect their wealth.
Major Banks High Cash Value Life Insurance
As of 12/31/2014, Federal Financial Institutions Examinations Council Call Reports
|JPMorgan Chase||10.6 Billion Dollars|
|Wells Fargo Bank||17.995 Billion Dollars|
|Bank of America||20.794 Billion Dollars|
|PNC Bank||7.699 Billion Dollars|
Whole life insurance is too expensive
When someone tells me that I will simply say “in relationship to what?” If you are just comparing it to premiums for a term policy on the same coverage amount you are correct. However, because of the tax free guaranteed compounding of a proper life policy many of my clients will overcome the actual cost of the insurance in the first few years of the policy. These policies will get to the point where they self complete which means the insurance company owes you more than you owe them in minimum premiums. So if you decided to, you could have the basic premium paid out of cash value and your cash value will still grow and move forward. So when 20 years from now you still want coverage and go to extend your old term insurance policy or buy another one, get ready for the shock of the new premium based on your attained age. If you had strongly funded a life policy 20 years before, that policy’s death benefit would have been growing these last 20 years (all part of proper design of the policy with a proper carrier) and no more funds would be required to maintain the policy due to the huge cash values you have accrued. You would have also have had access to large cash values to use for other wealth strategies.
Universal life or Indexed Universal life does the same thing as Whole Life
This is such a myth that I will need more than the space allotted to let you know how these policies really work over time and why the cost of insurance will skyrocket over the life of the policy. Please download my free report at my website and find the indexed universal life report under the video. Don’t you dare buy one of these policies until you read this free report. If you already have one of these policies get the report and be thankful there is probably something we can do for you to help. Ask us about a 1035 exchange of that kind of a policy to one that is better suited for long term and being your own bank.
I am too old or in too bad of health to obtain a life insurance policy
I have clients all over the country who once believed this to be true but now own life insurance policies. If you like the concepts of self banking and insurance policies don’t assume you can’t qualify for one of these policies. You may be able to qualify and the numbers will still make sense. If you indeed can’t qualify yourself there are other options.
Many of my clients take out policies on their children or grandchildren which mean the younger, healthier person qualifies for the insurance but my client owns the policy with all the benefits. I have clients in their 70’s who took out new policies but put the policy on their adult children. They then went on to use the funds in the policy as their own bank. Contact us to see if this might be an option for your situation as well.
When I am speaking to a crowd on this topic I often call a properly designed whole life policy as the “one account” because it is so truly unique and powerful. It is the only account that I am aware of that can function with many different uses that all work together. This is the only account that can be:
Savings Account– When you are not using your money it is sitting inside of the life insurance contract collecting much more in interest than it would if it was sitting in a bank. As of this writing most savings accounts are paying 0.5% or less and some life carriers dividend scale is almost 6.5% on life policies. Even after you take out the cost of insurance in the early years of the policy your money still does far better than dying a slow death in a traditional bank. You have easy access to your funds just like a savings account so why keep most of your money in the bank doing nothing for you or your family?
Your Personal Bank– Just as described in the last chapter you can put these funds to use to plug up your 4 massive wealth drains and help you grow wealth as the bank. Because you are doing this inside of your life insurance contract your earnings are tax deferred inside the policy and when properly done can be accessed tax free. Also with some policies and carriers the money you borrow out will still be credited with growth and dividends. This is not common but there are carriers that allow this and we can help you determining which carrier is best for your needs
Retirement Account- There will come a time when you desire to pull an income stream out of your policy. You will be able to either withdraw the money as you see fit (not optimal most of the time) or take policy loans that you will not pay back. In most cases policy loans are optimal because you don’t have to pay taxes on policy loans. If you choose, you don’t have to pay the policy loans back during your lifetime. The loans can be paid back out of the death benefit after you pass away. For instance you have a $1,000,000 death benefit but have borrowed out $250,000 in policy loans and deferred interest and you pass away, your family will receive the $1,000,000 death benefit less any outstanding policy loans which in this case are $250,000. This will produce $750,000 tax free to your estate after you pass away.
Rainy Day Fund- You should never borrow all the cash value out of your policy but rather keep a chunk of money in the policy in case of emergency. This is a rainy day fund that produces solid interest rates and return.
Estate Creator- Let’s not forget you are creating all this wealth inside of a life insurance contract which will automatically leave behind money for your family and/or anyone else you choose after you pass away. My mom, as she aged, started to worry more about leaving money behind for her family instead of living as abundant of a life as she should have lead. This is the only kind of program where you can spend every nickel during your lifetime and still leave behind extra for your family. Wherever you have your money saved or invested currently, ask yourself if the account you have it in has all of the benefits listed below. These are all benefits of a properly designed life insurance contract. Please feel free to contact us if you need more information.
Here comes the end of year and Christmas season bargains you just can’t resist! Many of us will be spending more money than usual this holiday season. Instead of worrying about it, create a simple wealth building game for you and your family. Combine wealth principles, Christmas, and technology to create additional wealth for you and your family starting this holiday season.
The question you need to ask yourself is, are you a “saver” or a “wealth builder”? There is a huge difference because most “savers” die broke and “wealth builders” die wealthy and live a wealthier lifestyle, especially in later years. So this holiday season and for 2017 try this little trick to get ahead and be a “wealth builder”.
When you are shopping for bargains this holiday season on gifts, food, wrapping paper, etc. save as much money as you can off of normal retail. Do this by shopping as wisely as time will permit either online or at some of the special sales events by retailers. So let’s assume you would have spent $1,000 on average this holiday season on gifts and holiday extras like meals and wrapping paper. According to the November 2016 Gallup poll the average American spends $752 just on gifts so the $1,000 is very realistic when you factor in food, decorations and wrapping paper.
Now assume you are a good shopper and you are able to save $300.00 off of your total retail bill of $1,000. That is fantastic but what happened to the $300.00 you saved or did not spend? For most of us it stayed in our checking account and we spent it on other items that were “non holiday” items. So the goal is not just to save money but to use those savings to create wealth. We will only accomplish this goal by focusing cash flow and getting it out of the spending account once it is saved. If you don’t do this the money is not “saved” contrary to popular belief but it’s just spent on something else.
Let’s use technology to our advantage when it comes to cash flow. First of all make sure you have a checking and a savings account at the same bank. Then pay for your items and run your life out of your checking account. Get set up for online banking, and if possible, mobile banking on your smart phone. Now you just have to do a little fourth grade math twice per week. Keep track of every item you buy on sale or use a coupon for and make a note of its retail or close to retail price. Then add up what you actually paid versus what you would have paid without the discount. The difference goes into your “wealth account” which is your savings account. This whole process will take no more than 10 to 15 minutes twice per week and does not even require a trip to the bank. So during the week you were going to spend $500.00 anyway on different items but you got discounts or used coupons and got that bill down to $400.00. Now take the wealth step and go on your mobile banking application and move that $100.00 savings over to your “savings account” and have it start to build wealth for your future. You pull out your smart phone and do a 15 second transfer from your checking to your savings account and without breaking a sweat or missing the money you are taking the first steps on creating more wealth.
In the Christmas example above that $300.00 savings is put away and generates even a 6% compounded rate of return will turn into almost $1,000 in 20 years if it is first put away and then put somewhere where it will grow. So if this is done for one year faithfully and you are able to “save” $5,000 and move it over to your savings and then invest it at the 6% rate of return you will have an extra $16,500 in 20 years for your retirement savings. Now do this every year and get better at it and you will have saved hundreds of thousands of dollars for your retirement years because you focused your savings. You’re not just a “saver” like every other shopper out there you are a “Wealth Creator”!
So next time you get a discount on something make sure you pay yourself the difference and you will very quickly establish a savings account and fund your retirement savings with tens or hundreds of thousands of extra dollars for you and your family. Now make this a truly Merry Christmas and Wonderful Holiday Season!
A new car is one of the biggest wealth drains for you and your family. Use these two simple yet powerful tips to take control of this expensive item.
Think in the Long Term (for Models)
Buy the car you want — but only after it is at least two years old, and three would be better. By doing this, you automatically save hundreds of thousands of dollars over your lifetime.
When I was 23, I wanted to buy a nice four-door sedan, and I was drawn to the Cadillac STS. The new model had a base price of more $50,000, and with any kind of little extras the sticker was almost $55,000. I was doing very well at a young age, but I wasn’t doing that well to blow 50 grand on a new car.
I was thumbing through my local paper (yes, this was before the Internet changed everything) and saw an ad for a 2½ year old Cadillac STS for $19,500. The car had less than 40,000 miles on it and came with an extended warranty to 90,000 miles. It was gorgeous, shiny and just serviced.
It was an attractive price since the first owner was eating the depreciation.
According to www.Edmunds.com, the average car will lose 11 percent of its value the second you roll it off the lot and an additional 15 percent to 20 percent the first year you own it. The second-year depreciation (loss) is another 15 percent, for a loss of at least 45 percent over the first two years.
Depreciation is usually calculated off of the base price, not the extras. This could be the sport package that raises the price $10,000 but only gives you $2,000 back after the first year or two. So it’s quite possible to find beautiful cars with manufacturer warranties still in place and pay 35 percent to 50 percent less than the first owner did when purchased new.
I drove that car for four years, had very few out-of-pocket repairs, and sold it for $3,500.
So what kind of deal could you get today? When I was young, one of the dream cars was a Ferrari Testarossa, and its price was around $200,000. You can buy one now for around $50,000, and most don’t have that many miles on them because they’re babied by the owners.
Think in the Short Term (for Loans)
If you finance your auto purchase, you can save a lot of money by keeping the term to no more than 36 months. This builds equity in the car faster and saves on interest.
This might be difficult because the monthly payment is higher than if you finance over six years, and it’s higher than a monthly lease. If you finance $25,000 at 5 percent interest for three years, your monthly payment will be $749.27, and your total payout will be $26,974. If you extend that loan out to six years, your monthly payment drops to $402.62, but your total payout rises to $28,989. That’s $2,015 more out of your pocket to own the car.
Assuming you buy the car with a small down payment, by financing it for six years, your loan pay-down is going at a much slower pace than the depreciation on the vehicle, creating an “underwater” situation on the car almost from the get-go. During the three-year program, you’re paying down the car faster than it’s depreciating, giving you options if you have to sell the vehicle.
If you truly can’t afford that three-year payment, take out a five-year option and send a little extra every month toward the principal to pay it off sooner.
Leasing a newer model looks attractive because the monthly payment is less, but you might not want to do that. I’ll explain why next post, when I offer several other ways to save loads of money when purchasing an automobile.
Believe it or not you might be better off buying your own car rather than funding your 401k or IRA! Learn more at https://www.youtube.com/watch?v=JjERU7KY16c
Since the early 1980s, 401(k)s and individual retirement accounts have become the dominant way that workers save for retirement. Yet many workers long for the days of traditional pensions when you could set your watch by how much income you could count on every month after your retired. Many people like that the pension fund (if it did as promised) would pay them and their spouses for the rest of their lives. To be fair, those old-style pensions had some serious flaws:
- It was difficult and sometimes impossible to port with you when you left the company. Depending on the program and how it was administered, you could be left without a pension and without the money in the pension fund if you left the company before a certain number of years.
- You didn’t control the asset base that created the income. After you and your spouse pass away, the income stream from the pension fund stops, and your estate gets no cash from the fund. This was even if both spouses passed away early and collected very little of the pension.
- It was difficult to impossible to access any of the cash inside of the pension prior to actual retirement.
With the 401(k) and most other qualified plans, the flaws of the pension were in large part put to bed.
Now you have the full right to withdraw or roll over your portion of your 401(k) when you leave the company. You control the asset base, so when you and your spouse die, any remaining balance left inside of your qualified plan will go to your estate. It is easier to access your account via loans — assuming you abide by terms laid down by your plan administrator and your employer.
As is often the case when you fix a flaw in something, that repair caused a new set of flaws to emerge. With 401(k)s and IRAs, the burden of guaranteeing income and performance is shifted to the employee. This means that if you are invested in the market, then in good markets you could win, and bad markets you could lose.
Wouldn’t it be great if you could combine the benefits of pensions, 401(k)s and IRAs? Consider annuities. Annuities are offered through insurance carriers to take in big chunks of money and guarantee a payout over a certain period, based on that sum used to purchase the annuity. There are two types of income structure:
- In the immediate annuity, income is started from the lump sum immediately after the annuity purchase.
- In the deferred annuity, your lump sum can grow before you activate the annuitization phase. This structure will result in more monthly income from the extra growth and the number of years the insurance company will have to pay out on the contract.
Once you decide on what kind of payout you want, then you have three basic choices:
- The fixed annuity will guarantee your principle never loses money in the market and guarantee modest growth during the growth phase. That rate might be 2 to 3 percent, so this is for the extremely conservative investor who believes in the old saying “I am more concerned about the return of my money than the return on my money.”
- The variable annuity will go up and down based on the movements of the chosen market (usually the stock market). This product is more for the market player who believes we are in for a bull market during the annuity contract years.
- The fixed indexed annuity will guarantee your principle is not lost, but your growth is not guaranteed. The growth will depend on which market index or indexes your annuity follows, such as the Standard & Poor’s 500 index (^GPSC).
With many annuities, you can add riders. The most common is the lifetime income rider, which for an annual fee will guarantee your future retirement income will increase every year regardless of the market’s rise or fall. As the name implies the insurance company will also guarantee your annual income for the rest of yours and your spouse’s life. This income will be guaranteed even if the underlying funds in the annuity are drawn down to zero.
Your 401(k) and IRA can be used to purchase an annuity with no taxes or penalties. Annuities do have potential pitfalls.
- They are not very liquid. There can be substantial penalties if you withdraw the original purchase price from the contract during a certain period. This penalty will usually graduate downward to zero. This penalty will be determined by the carrier and the product, and it will vary by state.
- Potential annual fees are inherent. Many fees can be reasonable and bring value (such as the lifetime income rider), but some fees buy you very little value and get prohibitive. Fees are generally higher with variable annuities due to their active money management. Make sure you are comfortable with the fees and know what you receive in return.
Just a few short years ago, I was staunchly opposed to whole life insurance, because that’s what I was taught by national “gurus” 25 years ago. I wholeheartedly believed (as many people still do) that if you need life insurance, you should buy a term policy, then take the difference in premiums between whole life and term and invest it in mutual funds.
So when a good friend of mine sat me down and tried to show me a whole life insurance plan, I nearly refused to listen. Many of you reading this will feel the same way, and nothing I say will change your minds. That’s fine — you’re entitled to your opinion just as I was entitled to mine.
Thankfully, my friend showed me how a properly designed whole life insurance policy works. I soon realized that the gurus in my early years and the gurus of today were correct — based on the information they’d been given. The problem was their information was incomplete.
Whenever I hear a financial consultant (or anyone, for that matter) talk about less expensive premiums for term, I know they really don’t understand how this animal of properly designed whole life insurance really works.
With a properly designed whole life insurance policy, you get:
1. Principal protection guarantees of your money.Your cash value isn’t subject to market losses, as it is with mutual funds and other programs. When the stock market tanks again (and it’s never a question of if but when), you won’t lose a dime.
2. Guaranteed growth of your money every year. This will be interest-rate-driven based on the economy, but your account will move forward every year regardless of what the market does. This is compound tax-free growth and not the “average rate of return” you get with mutual funds. To be fair, in our current low-interest-rate environment, the growth rates are only in the 2 percent to 4 percent range but as you study further you start to realize the real wealth is not in the growth rate even when rates go higher.
Many financial advisers will tell you that your money would do better in a good mutual fund. But remember: When someone shows you an “average rate of return,” they can start taking that average from any time that benefits their example. This is not compounded growth but rather a factor of timing as to when you enter and exit the market. The stock market has wild swings; if that is acceptable to you, you should have much of your money in stocks. If not, maybe it’s time to consider a different way to think about investing. (Remember the period from March 2000 to October 2002, when the Nasdaq lost 78 percent of its value? It’s been 14 years since the dot-com bubble started to pop, and the tech-heavy index still hasn’t quite recovered to that level. If you like guarantees and stability then you have no business putting most of your money in the stock market.)
3. Dividends paid to policy owners are not taxable. Dividends aren’t guaranteed, but many reputable life insurance companies have been in business for more than 100 years and they’ve paid out dividends every year. The amount of that dividend will depend on several factors, but it boils down to how much profit the insurance carrier made. When properly paid to the policy owner, those dividends are not taxable.
4. A high starting cash value amount, based on what you contribute to the policy. Whole life policies that aren’t properly designed will have very little cash value in the early years.
But a properly structured life insurance policy will have high cash value percentages, even in its first year, and they increase every year. This becomes an important fact when you realize that access to your cash will help you grow wealth systematically regardless of market conditions
5. Access to your cash value at any age, at any time, for any reason — without taxes or penalty. This is a huge benefit of whole life policies compared to 401(k)s and IRAs, which impose multiple obstacles if you want to access your cash before retirement, and penalize you if the funds you borrow from them are not paid back by a certain time and at a certain interest rate. No such obstacles exist with a whole-life policy. So leave your cash in the policy if you wish, or borrow it back out and use it, the choice is yours.
6. The ability to use your account’s cash value to recapture lost depreciation on major purchases and interest and fees paid to banks. If you treat this pool of money inside the life policy like your own personal bank, you can loan it out to yourself and others to create wealth. (More on this in future articles, but suffice it to say for now that banking has been around in some fashion for thousands of years. Any business model that lasts that long is worth understanding and using to your advantage.)
7. Guaranteed insurance. Once the policy is in place, your insurance is guaranteed for the rest of your life. Many people assume they’ll be able to buy new insurance at any point in their life. But nothing is further from the truth — especially for those who’ve been diagnosed with chronic or terminal diseases. If you become seriously ill, don’t expect to be able to buy a new policy.
With many whole-life policies, you can add an “accelerated death benefit rider” for little to no cost, which will give you access to a large portion of your death benefit during your lifetime if you have a terminal or chronic illness. I just had a colleague with a client who was diagnosed with Lou Gehrig’s disease, or ALS, and was sent a check from his insurer for more than 70 percent of the eventual death benefit. He’ll be able to enjoy his remaining time without worrying how he will pay his bills.
8. The ability to combine your life policy with the worlds of real estate, private lending and auto financing to accelerate your wealth, both inside and outside of the policy. Just remember that any funds inside the policy are tax-free for life.
9. Death benefits. In addition to all the benefits you can make use of while you’re still here, at heart, this investment is still a life insurance policy, so when you eventually die, there will be a sum of money left behind to your beneficiaries — tax-free.
There’s a reason family dynasties have been using life insurance for generations to grow and protect their wealth. Even when subject to estate limits, these death payouts go a long way toward promoting the tax-free, inter-generational transfer of wealth.
Of course, insurance company policies and riders will vary by state due to state regulations and depending on the actual insurance carrier. But you won’t find another type of account or investment that has all these benefits in one investment — not 401(k)s, IRAs, mutual funds, stocks, bonds, precious metals, real estate, nor any other account.