— (FINANCIAL) NON-PARTISAN
Famous People Have Been Using These Instruments For Over A Century. Do You Have It In Your Financial Portfolio?
America’s elite have been using cash value life insurance to stockpile wealth for centuries. If designed and funded correctly, it is better described as a personal bank on steroids, and a financial bunker for tough times.
A product so secure and tax efficient that it’s responsible for the success of Walt Disney, JC Penney, Ray Kroc, and thousands of others.
Walt Disney borrowed from his life insurance in 1953 to help fund Disneyland, his first theme park, when no banker would lend him the money.
Following the 1929 stock market crash, leading retailer J. C. Penney borrowed from his life insurance policies to help meet the company payroll.
In 2002, Doris Christopher sold her kitchen tool company, the Pampered Chef to *Warren Buffett * for a reported $900 million. Seven years earlier, she launched the company with a life insurance policy loan.
Foster Farms was founded in 1939 when Max and Verda Foster borrowed $1,000 against their life insurance policy to buy an 80-acre farm near Modesto, CA
Senator John McCain secured initial campaign financing for his presidential bid by using his life insurance policy as collateral.
IF IT’S GOOD ENOUGH FOR BANKERS…
The nation’s large banks invest immense sums of their Tier 1 capital reserves, a bank’s most valuable asset and a key measure of its strength, into permanent life insurance underwritten by major life insurance companies.
Why do banks look to insurance companies for a sound investment? Unlike banks, life insurance companies do not use excessive leverage. If a bank has $1 million on deposit, it can lend out up to $10 million to the public. This leverage is called “fractional reserve lending”, and it can lead to instability. Indeed, excessive leverage is a major reason why banks are failing today and have throughout history.
However, if a life insurance company has $1 million on deposit, that company may loan no more than $920,000, and usually only a fraction of that. As such, life insurers are 100 percent reserve-based lenders, which makes them stable institutions in sagging economies.
Why Life Insurance
Permanent life and annuities, when backed by the general account of a life insurance company, contain financial guarantees, are protected by state guarantee funds, and adhere to strict investment portfolio standards. Enormous losses in today’s stock market illuminate the dangers of investing without guarantees. During the Great Depression, when more than 10,000 banks failed, 99.9 percent of consumers’ savings in life insurance and annuities remained safe with legal reserve life insurance companies.
Earnings in addition to guaranteed rates. Although additional earnings above guarantees are not assured, most life companies paid extra earnings even during the Great Depression.
Permanent life insurance and annuities are savings systems. A major problem today in financial planning is that 401(k) and mutual fund marketers have successfully blurred the difference between “saving” and “investing.” When one saves, money is safe and liquid. When one invests, 100 percent of your money is at risk 100 percent of the time.
When you save through permanent life insurance and annuities backed by the insurance company’s general account, your funds are safe, liquid, and tax-favored.
Valuable tax benefits
Savings and earnings within permanent life insurance and annuities grow tax-deferred, and loans from insurance are not taxable. What’s more, insurance proceeds are received income-tax-free and, in most cases, estate-tax-free.
Although asset-protection privileges for lawsuits and bankruptcy vary from state to state, life insurance, and annuity assets are a favored asset in all states. States with particularly strong asset protection for life insurance and annuities include Arizona, Florida, Michigan, New York, New Mexico, Oklahoma, and Texas.
Income-Tax-free death benefit
Life is a gamble. The greatest risk we face is the risk of premature death. Protecting those people or causes we love with life insurance is a wise allocation of resources.
When the Reverend Jerry Falwell died in 2007, he left $34 million in life insurance to pay off Liberty University’s debts, strengthen that school’s endowment, and provide funding for a Thomas Road Baptist Church. Newer annuities also offer additional life insurance benefits.
Professional money management
Savings within a life insurance company are professionally managed to secure the highest rate of return with the maximum amount of safety. You will enjoy diversification by the industry as well as by geography.
Unlike some retirement plans, you have access to your money in a life insurance policy through loans and other options. Today, money within a qualified retirement plan (e.g., pension, 401(k), 403(b), IRA) is money in a straitjacket until retirement. Unfortunately, your money is still subject to market risk, inflation, and lost opportunity cost. Not so with permanent life insurance or annuities that are backed by the insurer’s general account.
Life insurance and annuities can perform additional economic jobs as well. By attaching riders onto base life insurance and annuities, they can provide additional benefits for disability protection, long-term care, critical illness, and retirement funding.
Life insurance and annuities are wills unto themselves. They can accommodate multiple and complex beneficiaries, and can be easily efficiently changed without legal costs. At your death, they also bypass probate — thus avoiding legal bills, appraisal costs, taxes, and other expenses common even to midsized estates. States with particularly excessive probate costs include California, Connecticut, and Georgia.
GUIDELINES FOR INVESTING
Life insurance and annuity purchases are some of the most important financial decisions you can make. Do not purchase either of them if you plan to do it for only a year; there are costs associated with any investment, and these are long-term planning tools.
Finally, this CPA prefers mutual life companies over publicly traded stock-based life insurers (although stock corporations can be well-run and offer investors great value). Why mutual companies? A mutual company is not a publicly traded entity and does not succumb to the constant demands and whims of Wall Street. Mutual companies, although not entirely unscathed, have for the most part dodged the stock market meltdown that has hammered their publicly traded counterparts.
Mutual companies, often criticized for being too prudish and conservative, are now pillars of strength. With a mutual company, you are technically an owner in the corporation and receive the profits of the company through dividends and interest — not stock.
If a mutual company does go public at a later date, its investors can enjoy potential rewards of cash, additional insurance, or shares of the newly public company — while still maintaining their initial insurance and annuities.
It is wise to work with an adviser who has expertise not just in life insurance and annuities, but who has a working knowledge of taxes (CPA/PFS), risk management, investments, and economics. Insure your life as you would insure the economic replacement value of your automobile, home, or practice. Your human life is the greatest economic value of them all — the creator of all property values.
As a general rule, the economic replacement value for life insurance for an individual under 40 is 20 to 25 times his annual income. If you are young, you will need large amounts of term life insurance — pure death benefit protection. As cash flow improves and debts such as student loans are paid down, purchasing permanent life insurance makes economic sense.
When buying life insurance and annuity products with savings components, purchase products that are backed by the general account of the company first. Why? The general account is the heart of any life insurance company and, by design, one of the safest depositories for savings in America today. By choosing general-account-backed products first, all financial risks are shifted onto the insurance company.
When allocating funds to life insurance and annuities as an asset class, a commitment of 10 to 30 percent of one’s portfolio is prudent, since these instruments have a constant value and are easily convertible into cash. The nation’s large banks consistently invest between 10 to 30 percent of their reserves — hundreds of millions of dollars — into life insurance and annuity products. There’s every reason for you to do the same.
SORTING OUT THE OPTIONS
Simply put, there are two types of life insurance — term and permanent — and a combination of both types operate well for most investors.
*Term insurance *covers you for a specified period, usually from 5 to 30 years, depending on your age. You are renting the coverage for a period of time.
Permanent or cash-value life insurance are essentially one and the same: insurance for as long as you live. You own your life insurance. Permanent life insurance has a savings component and a death benefit. There are three general types of permanent life insurance: whole, universal, and variable life.
Whole life has guarantees in mortality charges and interest, and additional earnings in dividends.
Universal life is more flexible: Interest received is determined by short-term money rates. Mortality charges increase with age.
Variable life includes mortality charges that can be either fixed or increasing. The savings component rate of return with variable life is determined by the rate of return in the stock market — thus adding significant risk.
An annuity, meanwhile, is a contract issued by an insurance company that offers a guaranteed rate of interest and guaranteed payout options — including an income for life. Annuities are particularly well-suited for retirement savings and are the cornerstone of all pensions.
Unlike a bank or mutual fund, an insurance company must maintain cash reserves equal to the annuity’s value. Strict state laws guarantee your principal investment. You won’t pay taxes on interest earnings until you withdraw.
As you can see in the link below, the Clintons own five Cash Value Life Insurance Policies. The exact investments as America’s Elite.
Secretary Clinton’s Financial Disclosure Statement, filed for the 2016 electionsClinton’s Asset Disclosure Page See Page 8 of 11, Part 6: Other Assets & Income, Take a Look at the Five Investments in their portfolio
See Page 4 of 20, take a look at the five investments in their portfolio: https://assets.documentcloud.org/documents/2082788/hillary-clinton-financial-disclosure-form.pdf
So, if you haven’t added Life Insurance to Your Financial Plan, contact us for a free no obligation analysis and we will show you how you could reach your goals and dreams – without the risk or volatility of traditional methods.
I urge you not to put it off another day. You have nothing to lose and potentially much to gain!
Influencers of this article are Nelson Nash, his book “Becoming Your Own Banker: Unlock the Infinite Banking Concept”; Pamela Yellen, her book “Bank on Yourself”; Dwayne Burnell, his book “Financial Independence in the 21st Century – Life Insurance * Utilize the Infinite Banking Concept * Compliment Your 401K – Retirement Planning With Permanent Whole Life versus Term or Universal – Create Financial Peace”; and Dan Thompson “The Banking Effect: Acquiring wealth through your own Private Banking System.”
I have also utilized the sources listed below.
- Confessions of a CPA: The Truth About Life Insurance Paperback – Bryan S. Bloom CPA
- Confessions of a CPA: Why What I Was Taught To Be True Has Turned Out Not To Be – Bryan S Bloom CPA
- Money. Wealth. Life Insurance.: How the Wealthy Use Life Insurance as a Tax-Free Personal Bank to Supercharge Their Savings – Jake Thompson
- The Pirates of Manhattan – Barry James Dyke
- The Pirates of Manhattan II: Highway to Serfdom – Barry James Dyke
- LIMRA analysis of A. M. Best annual statement data
Written by: Miguel Palma