The Money Advantage® Podcast | Infinite Banking Concept & Family Banking

Are you looking for opportunities to invest in real assets for cash flow?  Today, we’re talking with Dave Zook, a successful investor and syndicator who creates value for people through opportunities for investing in ATMs. We also discuss investing in other real assets: multi-family apartments, and self-storage. 

https://www.youtube.com/watch?v=0HCjitn757s

So if you want to learn about investing for cash flow in real assets that withstand market turmoil, tax-efficient investing, and creating momentum through stacking investments … tune in below!

Table of contentsWhere Does Investing Fit in the Cash Flow System?How Investing in ATMs is Tax AdvantagedApplying the Tax Code to ATMsHow Does Investing in ATMs work?An Opportunity for 7 YearsThe Future of Investing in ATMsBegin Investing in ATMs TodayAbout Dave Zook

The most popular alternative investments we talk about on The Money Advantage is real estate. Interestingly enough, investing in ATMs is almost like real estate, though it probably hasn’t crossed your radar. ATM investing is a great way to invest for cash flow, and Dave Zook has changed the game. 

No matter how large your pile of money is, cash flow is what allows you to build time and money freedom. You’ve got to have money flowing. Investing in ATMs is one way to create a cash flowing investment, with some significant tax benefits. 

Where Does Investing Fit in the Cash Flow System?

Investing is just one step in the path to time and money freedom.

That’s why we have created the 3-step Business Owner’s Cash Flow System.  It’s your roadmap to take you from just surviving, to a life of significance, purpose, and financial freedom.

The first step is keeping more of the money you make by fixing money leaks, becoming more efficient and profitable.  Then, you’ll protect your money with insurance and legal protection, and Privatized Banking.  

Finally, you’ll put your money to work, increasing your income with cash-flowing assets.

How Investing in ATMs is Tax Advantaged

Dave Zook stumbled into ATM investments after landing a tax bill of about $500,000. He realized that despite all the time and effort he had poured into his business, he’d still have to give half of his earnings back to the government. That's when he researched tax strategies, many of which we talk about on The Money Advantage. He discovered the secret to tax-free wealth using the incentives that the government wants you to take. Through investments and practices that support the economy, the government will reward you with deductions. 

Multi-family apartments were Dave Zook's starting point to take these tax benefits. Providing housing is one of our favorite ways to slash taxes. It creates monthly cash flow, and it provides a necessary service to the public. The government doesn’t want to act as a landlord, so by properly structuring your real estate deal, you can partake in certain deductions. Not to mention, your Privatized Banking system is an ideal way to fund the purchase of properties. This strategy helped him continue to have fun in his line of work, while simultaneously making money that he didn’t have to lose. Thinking differently put Zook in a position to keep more of what he had and put it to work in more ways.

By bringing his tax liability down to around 0-3%, Dave could invest in other asset classes like self-storage and ATMs. After passively investing in ATMs for a few years, a sponsorship team approached Zook to become a partner and scale the business. Now, they’re one of the top 5 ATM operators in the country. 

In Zook’s words, “The times where you learn the most are when you’re experiencing either great pleasure or great pain.” For him, having only a few days before April 15th to come up with a couple hundred thousand dollars was the catalyst for major change. 

Applying the Tax Code to ATMs

Section 179 of the tax code is a great incentive for businesses both big and small.

Do you want to use whole life insurance to store cash, build an emergency/opportunity fund, and create a legacy, but you wish you’d learned about this concept when you were younger? Do you feel like you’re too old for the Infinite Banking Concept (IBC)?

https://www.youtube.com/watch?v=ZX91AY2tYlo

Fortunately, it might not be too late for you to get started. In this episode, we’re going talk about how life insurance works when you start a policy later in life, and how you can make the most of it. So if you want to see if Privatized Banking can still work to build cash value and accelerate time and money freedom, even if you’re starting a policy as a senior, tune in below!

Table of contentsWhere The Infinite Banking Concept Fits In The Bigger PictureHow Old is Too Old for Infinite Banking?The Impact of Privatized Banking Later in LifeHow Can You Use Privatized Banking Now?Transfer of IRAFamily BankingPrivatized Banking As IncomeSocial Security and Pension MaximizationVolatility BufferPermission to SpendAccelerated Death Benefit RiderNot Too Old for Infinite BankingBook A Strategy Call

Where The Infinite Banking Concept Fits In The Bigger Picture

The Infinite Banking Concept is just one step in the greater Cash Flow System.

While it’s nestled into Stage 2, Protection, it also improves everything else around it.  Infinite Banking helps you keep more of the money you make in Stage 1, amplify your cash-flowing asset strategy in Stage 3, and accelerate your Time and Money Freedom.

How Old is Too Old for Infinite Banking?

Many people assume that because Privatized Banking takes time, that after a certain age it’s no longer a viable strategy for them. In reality, there’s more time than you’d think. Your results, after a certain age, will depend more on what you’re hoping to accomplish than anything.

Most people look at life insurance and think of term insurance, the simplest insurance, and have preconceived notions. It’s insurance that is pure cost. And based on experiences with term insurance, people are hesitant to pursue insurance strategies later in life. However, whole life insurance can work for you even if you start in your senior years.

Whether you’re hoping to bridge income, leave a legacy, or round out your estate plan—it’s likely not too late. You can be in your 70s and start your first policy. In reality, most insurance companies will take policies until age 80. So clearly, they believe that it’s valuable enough for someone in their 70s.

Ultimately, this is possible because of the careful actuarial planning of life insurance companies, which allows them to insure people up to that point.

The Impact of Privatized Banking Later in Life

One of the biggest concerns we hear is that the cash value won’t be as large. While it’s true that your break-even point may be later, the trajectory will be more or less the same. The opportunity cost lost in your cash value may only be a few hundred dollars. The amount of cash value is proportionate to the way the policy is designed, and the premiums paid because of that design. The most significant loss is the face value of your death benefit. What would be a $2 million death benefit for a 30-year old is going to be about $1 million for a 50-year-old. For a 70-year-old, it may be closer to $500,000. However, that half a million will have a better impact on your legacy planning than nothing.

The reason the death benefit will decrease the older you are when you start a policy is that the cost of insuring you goes up. Insurance companies know that they’ll have to pay a claim on everyone they provide whole life insurance to; however, they use very careful mortality calculations to do so. The likelihood they’ll pay a claim on a 30-year-old is minuscule. So the costs of insurance are more likely to be covered. Someone in their 70s is likelier to have a claim paid sooner, which means the company has a smaller window to cover the costs of insurance. So the same premium will buy less death benefit.

How Can You Use Privatized Banking Now?

Although whole life insurance itself may be available to you, Privatized banking strategies do take time. Does that mean if you’re in your 60s or 70s that it’s no longer available to you?

Fortunately, you're probably not too old for Infinite Banking. We have several real-world examples of people who have started policies in their 70s and have used them to implement wealth strategies. Here are some ideas of what you can do with your insurance.

Transfer of IRA

With a new policy, one woman in her 70s decided to transfer her IRA into a whole life policy. She wanted to leave a legacy for her children and saw the advantages of paying taxes today, to transfer a tax-free inheritance.

Additionally, she has no interest in real estate or starting a business, but she does take an annual trip to South America. Usually, she pays for this trip by saving a few hundred dollars a month. So instead, she’s decided to borrow against the policy, and use the money she saves to pay down the loan.

She believed at one time that she may be too old for Infinite Banking strategies, yet she's found practical ways to implement these strategies.

Family Banking

Another person used their cash value to buy a rental property for their children to live in. They charged reasonable rent so their children could have housing, while they worked on their credit scores and saved money. They then took the cash flow from the property to pay the policy loan back.

Another way to use the family banking strategy is to take the cash value, loan to your children to buy cars, and have the children pay you back.

If you don’t think your children will pay you back, consider this. Your children are likely your beneficiaries. So they’ll get the same amount whether they pay you back or not. The death benefit will be reduced by any outstanding loans when paid out. By repaying the life insurance loans now, your children increase their payout at a later date. Keep in mind that you can also set up the repayments to be processed straight from their bank accounts.

Privatized Banking As Income

Another key component of Privatized Banking is the ability to supplement your retirement income. Not only can it be an additional stream to pull from, but it also makes all of your assets perform better. Here are a few examples.

Social Security and Pension Maximization

Social security is taxed at a maximum of 85%--which means that only 85% of your social security income is subject to taxes. If your other income is below $44k, you can lower the portion of your social security income that is taxed. And if you can reduce your income below $32,000 you won’t have to pay any taxes on social security income. And many people will say, but how do I live on that?

That’s where Roth IRA and whole life insurance dividends come in. The use of these assets will allow you to pull interest and dividends, or even take policy loans to supplement your income. And the reason you don’t pay taxes is that you already paid the taxes on that money before your contributions or premiums. So you can slash taxes paid on your Social Security and stay in a lower tax bracket, all while drawing a significant income. It’s in the tax code, making it a legal tax strategy.

You can also use whole life insurance for pension maximization.

Volatility Buffer

Whole life insurance can also act as a buffer against any market volatility. With this strategy, you can increase the longevity of your investments by years if you’re drawing income from an investment portfolio. The idea originated with Wade Pfau. The strategy is to draw your income from your life insurance when the market is down. It’s hard to recover from a down year when you have to take money out of your investments, and it can quickly bleed you dry. The ability to instead draw income from another account allows it to bounce back.

Permission to Spend

Another reason whole life insurance can be beneficial to you in retirement is the “permission to spend” idea. That is, if you want to leave a legacy and still want to use your other assets, whole life insurance acts as a permission slip. The knowledge that you’ll have a death benefit to leave to your heirs can give you the peace of mind to use your existing assets—reverse mortgages, SPIAs, and other income-producing strategies won’t leave your heirs without.

Accelerated Death Benefit Rider

Towards the end of your life, you can use the accelerated death benefit to pay for unknown expenses. This is a good last resort, and safety net, that can give you tremendous peace of mind. If you have the accelerated death benefit rider, the insurance company will give you access to your death benefit if diagnosed with a terminal illness. This benefit can be used for medical expenses and, in reality, anything you wish.

However, life insurance is an asset that you’ll want to keep for as long as possible, so we don’t recommend using whole life insurance as your primary income. You can best utilize your policy as a support asset, one that provides you with peace of mind.

Not Too Old for Infinite Banking

If you’re in your senior years and you think you’ve missed the opportunity to start your privatized bank, you're probably not too old for Infinite Banking. You have more time than you think. This asset provides you with liquidity, certainty, and the promise that you won’t outlive your money.

If you’re wondering how whole life insurance fits into your personal economy, we’d love to help. We exist to help you do the most with your money, so you can build time and money freedom.

Book A Strategy Call

Do you want to coordinate your finances so that everything works together to improve your life today, accelerate time and money freedom, and leave the greatest legacy? We can help!  

We spend a lot of time and attention educating and sha

Are you concerned about ballooning healthcare costs? You should be! It’s an expense that’s risen far faster than inflation, and paying more than you need to is a money leak that prevents you from making the forward traction towards your financial goals that you deserve.

https://www.youtube.com/watch?v=x9J6MGxNFMU

In this episode, we’re talking with Dave Chase about how community-owned health plans are revolutionizing a stagnant industry that’s failed to develop.

So, if you want to learn how to save 20—40% in healthcare costs while improving access to high quality, trustworthy, local, affordable care, with a solution-oriented look at transforming the industry, and your life with it… tune in below!

Table of contentsWhere Profit Maximization Fits into the Cash Flow SystemYou’re in the Healthcare BusinessAre Healthcare Costs Legitimate?Health Insurance vs. Healthcare CostsDirect Contracting HealthcarePreventative HealthcareAbout Dave Chase 

Where Profit Maximization Fits into the Cash Flow System

Minimizing your health care costs, so more of the money you make is yours to keep, is just one part of a bigger journey to building time and money freedom.  No matter how big your business grows and how much money you make, if it’s all leaking out between your fingers, you’ll never be free of just working harder and harder to make more money. 

That’s why we have created the 3-step Business Owner’s Cash Flow System, your roadmap to take you from just surviving, to a life of significance, purpose and financial freedom.

The first step is keeping more of the money you make by fixing money leaks, becoming more efficient and profitable.  Then, you’ll protect your money with insurance, legal protection, and Privatized Banking.  Finally, you’ll put your money to work, increasing your income with cash-flowing assets.

Minimizing health care costs happens right here in The Money Finder step of your financial foundation. When you find, recover, and keep more of the money you’re making, you put more gas into your cash flow machine. And that accelerates your time and money freedom.

You’re in the Healthcare Business

...regardless of whether you like it or not. If you’re a business owner, healthcare should be a part of your business model. It’s the last area to modernize inside businesses. However, the health of your employees directly affects their work, so it’s an essential element of running a business. 

The rising healthcare costs, thanks to health insurance, leave individuals and businesses alike feeling downtrodden. However, insurance is not the only solution for health and wellbeing. The common misperception is that solving healthcare seems as difficult as solving Middle East peace. That is only true if you believe and work with those desperately focused on preserving the status quo. The distinction lies between care and insurance.

Are Healthcare Costs Legitimate?

Health care isn’t expensive. What's expensive are price-gouging hospitals, profiteering PBMs, bloated carriers, inappropriate treatment, and outright fraud. Only $0.08 of every $1 ostensibly spent on healthcare goes to physicians ($0.27 for all). 

As a result, medical practices are shutting down, while mega-carriers are making record-breaking profits. 

The solution is to rethink care. How can employers provide care in a way that is cost effective for everyone?

In the era of high deductible health plans, there are large and fast-growing markets in the direct contracting (employer to provider) and cash pay markets. Because the underlying costs of care haven't changed (i.e., clinician pay and medical supplies), there is no good reason for hyper-inflating prices. 

Organizations like Pacific Steel put this insight into action. Four years ago, they were spending over $8 million on health benefits (for 750 employees). Last year, they closed out at under $3.5M while benefits improved. All because they reimagined health care.

Health Insurance vs. Healthcare Costs

So what’s the difference between health insurance and healthcare? 

Healthcare centers on predictable items you can budget. These are the things we know most people will require or experience in a lifetime. They’ll have a particular amount of checkups, surgeries, and ailments. 

When we think of healthcare in this way, health insurance becomes coverage for the unpredictable. Rare cancers, diseases, or surgeries that aren’t as likely to occur. 

As an employer, this insight can help you provide better benefits for more people while reducing spending. Having "in-house" care allows employees to focus on regular and preventative care, keeping themselves healthy. Additionally, it keeps healthcare costs low. This is how Pacific Steel reduced their largest cost and provided better benefits. 

Direct Contracting Healthcare

Healthcare costs have inflated faster than nearly any industry, while costs have remained level. Had this spending tracked regular inflation, the average baby boomer could have a $1 million nest egg. Instead, they've unknowingly funneled that money into Wall Street, in what is one of the biggest wealth transfer in history. 

Instead, more than half the workforce is functionally uninsured, because they can’t afford their deductibles. And typical solutions from the healthcare industry have been little more than cost-shifting or distracting. The stress that this creates for workers can negatively affect their health and work performance, trapping them in a vicious cycle.

Direct contracting seems to be one of the most viable solutions to this rising cost. Thousands of medical practices are already cutting out the middleman this way. By creating a direct contract with local employers, not only do the medical practices keep more of the cost for themselves, it’s cheaper for employers to offer benefits. 

Preventative Healthcare

With direct contracting, you’re creating a win-win scenario for everyone involved. Thus, medical practices can stay open and thrive, employers can reduce costs by cutting out the middleman, and employees can get more bang for their buck. 

Regular check-ups, surgery alternatives (like physical therapy), and mental health care are among the benefits of direct contracting. Practices like these can also improve day-to-day health and reduce the likelihood of more serious conditions. In addition, direct primary care meets the most common needs of the average person. Companies can then insure more costly occurrences themselves.  

The overarching theme is wise leaders have said "enough" and are working with the right folks to apply the insights above. They are typically spending 20-40% less per capita than the status quo with superior health benefits.

About Dave Chase 

Chase leads the vision for Health Rosetta, which is to empower community-owned health plans. Health Rosetta’s blueprint and platform powers the health plans of your dreams: high quality, trustworthy, local, affordable care — that you thought had disappeared forever — from caregivers we know & trust. They free up compassionate, well-trained, community-based caregivers to rediscover love in medicine so they can fulfill their calling: serving patients not just in disease, but toward their fullest health.

A trusted & sacred caregiver-patient bond grows through transparency & openness that equips and empowers patients wherever they can best achieve their unique health goals — at home or any setting best optimizing their well-being. By avoiding the 50% wasted healthcare costs, we can ensure our caregivers have the independence & resources to address the psychosocial and medical issues their patients face. Human-centered health plans restore health, hope & well-being.

Through best-selling books & The Resident (on FOX), Chase highlights the tremendous successes & opportunities with Health Rosetta-type health plans. The books, TED talk, and TV/film are reaching over 10 million people to inform, enrage, empower and activate a broad grassroots movement designed to restore hope, health & well-being to our communities. Chase received the Health Value Awards' Lifetime Achievement for Health Benefits Innovation at the 2020 World Health Care Congress.

Chase co-founded Avado, which WebMD/Medscape acquired and integrated into their system. He also founded Microsoft's $2B, 28,000 partner healthcare ecosystem.

Outside of work, Chase is an oxygen-fueled mountain athlete and volunteer high school track & cross country coach. Once upon a time, Chase was a PAC-12 800 Meter & 4x400 competitor. Devotion to faith, family, and friends underpin a desire to be a servant leader to the 4 million lives (& growing) stewarded through the Health Rosetta community.

Find Out More About Health Rosetta

Learn more at Health Rosetta.

Get a copy of Dave Chase's book, Relocalizing Health: The Future of Health Care is Local, Open, and Independent.

You can find and follow Dave with the handle @chasedave on all social media outlets.

And if you're ready to think differently about your healthcare, you can find a benefits consultant to begin implementing these ideas in your business.

Find Out Your Next Step to Time and Money Freedom

Do you want to use Privatized Banking, alternative investments, or cash flow strategies to coordinate your finances so that everything works together to improve your life today, accelerate time and money freedom, and leave the greatest legacy? We would love to help you.  

Book an Introductory Call with our team today https://themoneyadvantage.com/calendar/.

By the way, to find out more about how Privatized Banking gives you the most safety, liquidity, and growth  … plus gives you the ability to have your money do 2 things at the same time, boosting your investment returns. 

Go to https://privatizedbankingsecrets.com/freeguide to learn more.

Thanks for Tuning In!

...

I heard whole life pays dividends — but what does that really mean?

This question comes up constantly when we talk with business owners and high-earning professionals about Privatized Banking. And honestly, I get it.

The world of whole life insurance dividends can feel a little murky. Confusing. 

https://youtu.be/AwW0cKHR-sA

So we brought in someone who knows this stuff inside and out: Perry Miller, former Regional VP of Lafayette Life Insurance Company. Perry spent decades in the trenches, helping advisors and families navigate the complexities of whole life insurance.

So if you want to see how dividends work, understand how they will impact your policy in the future, and make the best decision when starting your Privatized Banking policy now, so you'll get the most use out of your money later, tune in below!

Quick Highlights

In this article, you'll discover:

What whole life dividends actually are (and why they're completely different from stock dividends)

The 4 biggest myths about dividend rates 

Why comparing dividend rates between companies is almost meaningless

How to use dividends strategically to build generational wealth

The track record of mutual companies paying dividends for 150+ years through every economic crisis

What's guaranteed vs. what's not in your whole life policy

Where Whole Life Insurance Fits Into the Bigger Picture

Privatized Banking with whole life insurance is just one part of the bigger journey.

That’s why we’ve developed the 3-step Cash Flow System. It’s your roadmap to go from just surviving to a life of significance, purpose, and financial freedom. 

The first stage is the foundation. You first keep more of the money you make by fixing money leaks, becoming more efficient, and profitable. 

Then, you protect your money with insurance, legal protection, and privatized banking. 

Finally, you put your money to work, increasing your income with cash-flowing assets.

Table of contentsWhere Whole Life Insurance Fits Into the Bigger PictureWhat Are Whole Life Dividends?The Guarantees of Whole Life InsuranceHow Dividends Are CalculatedDividend Payment Options ExplainedPaid-Up AdditionsTaking CashPremium OffsetAccumulate at InterestWhy Dividends Actually MatterYour Money Compounds FasterYour Family Gets Better ProtectionYou Get More Financial Scope4 Myths of the Whole Life Insurance Dividend1. The highest declared dividend means you’ll get more growth in the long term.2. Dividend rates mean the same thing from one company to another.3. Today’s dividend rate on the illustration means guaranteed dividend rates in future years.4. Everyone gets the declared dividend.Direct Recognition vs. Non-DirectHistorical Reliability and Future OutlookLooking Deeper than Whole Life Insurance DividendsWho is Perry Miller?

What Are Whole Life Dividends?

There is some confusion in the marketplace equating whole life insurance dividends with stock dividends; however, they’re not the same. 

So, does whole life insurance pay dividends?

Yes. But here's what they actually are: returns of excess premium from mutual insurance companies to their policyholders.

These dividends are a calculation of a few factors, including expense and interest rate forecasts, portfolio performance, and mortality rates.

If they do better than expected on any of those fronts, they share some of that "extra" with you. That's your dividend.

In short, stock dividends come from profits from investments. Dividend insurance comes from the insurance company's operational performance.

The Guarantees of Whole Life Insurance

Your whole life policy guarantees three things, period:

Your premium (it won't go up)

Your death benefit (it won't go down)

Your cash value growth (it will happen)

Everything else? Including dividends? NOT guaranteed.

Dividends are the icing on the cake. By charter and by law, insurance companies must pay contractual guarantees. If rates, mortality, and expenses change or fluctuate, that can affect the company’s ability to pay those guarantees.

So the dividend is like the safety valve. If something doesn’t work out as expected, companies will lower dividends to compensate. On the flip side, if those factors do better than projected, you get to participate in higher rates as well.

Most companies can boast that they pay dividends regularly, yet do they meet the projections? Not always. However, that flexibility allows them to meet their guarantees.

This mechanism allows the companies to give policy owners the certainty of the death benefit and other guaranteed provisions. So not only are the dividends a bonus, they act as an assurance that the company will meet their contractual obligations.

How Dividends Are Calculated

Companies look at three main buckets:

Company profits and how their investments performed. If they projected 4% returns and actually earned 5%, that extra 1% factors into dividends.

Interest earnings on their portfolio. Insurance companies invest VERY conservatively - think bonds, real estate, blue-chip stocks. When these perform well, you benefit.

Operating expenses and mortality experience. If fewer people died than expected, or if they ran their business more efficiently than projected, some of that savings flows to dividends.

Right now, current gross dividends run somewhere between 4% and 6%. But we’ll show you later why that may not be what it seems. 

Dividend Payment Options Explained

When your policy earns dividends, you've got four choices for what to do with them.

Paid-Up Additions

This is where the magic happens, and honestly, it's what most wealth-building families should choose.

When you take dividends as paid-up additions (PUAs), you're buying more life insurance with that dividend money. More insurance means more cash value.

AND if you want to know which dividend option will increase the death benefit? You’ve got it, PUAs.

You see, those PUAs earn dividends too. So next year, you're earning dividends on your original policy PLUS dividends on all the PUAs you've accumulated.

It's like a snowball rolling downhill, getting bigger and faster every year.

Taking Cash

You can take dividends as cash, and sometimes that makes sense if you have cash flow needs that have to be met. Otherwise, it’s an immediate gratification trap.

But every dollar you take as cash is a dollar that's NOT compounding for the next 20, 30, 40 years.

It's the difference between instant gratification and long-term cash value growth that changes your family's financial trajectory.

Premium Offset

Some people use dividends to reduce their premium payments. This can provide cash flow relief, especially in tight years.

But again, you're trading long-term compound growth for short-term cash flow improvement. Sometimes that trade makes sense. Usually, it doesn't.

Accumulate at Interest

Your dividends can stay with the company, earning interest. This is safer than taking cash and more flexible than PUAs, but it typically generates lower long-term returns.

This might work if you're planning to use those accumulated dividends for something specific down the road.

Why Dividends Actually Matter

Here's where we get to the heart of why this matters.

Let’s start by answering the following question: What is the difference between cash value and dividends?

Your cash value is the guaranteed foundation - the money that will be there no matter what. Dividends are the accelerator that can turn a solid policy into a generational wealth-building machine.

When you understand how to use dividends strategically, three things happen:

Your Money Compounds Faster

Every dividend reinvested as PUAs creates more insurance, which creates more cash value, which generates more dividends. It's geometric growth, not arithmetic.

Your Family Gets Better Protection

More death benefit means more financial security for your spouse and children. But it's also a more tax-free wealth transfer when you're gone.

You Get More Financial Scope

A policy with strong dividend growth gives you more borrowing capacity for investments, business opportunities, and more. Your policy becomes the engine that funds other wealth-building activities.

4 Myths of the Whole Life Insurance Dividend

1. The highest declared dividend means you’ll get more growth in the long term.

When comparing policy illustrations, the numbers can be complex. And on occasion, policies will be nearly identical, and the only major difference appears to be the dividends. On the surface, you’d think that makes the decision simple. 

However, dividends are not guaranteed, and as noted above, are not always paid as projected. Just because company A has higher projections than company B now does not mean that will always be the case.

Dividends will fluctuate, so you cannot rely on current projections to accurately determine future growth. Rates you see this year can change in the next. Over time, these projections will likely even out between the companies.

When comparing policies, look at the details of the contract, policy and company history.

2. Dividend rates mean the same thing from one company to another.

When companies declare dividends, they show either a Gross rate or Net rate. And the companies won’t specify which one they’re showing. This is yet another reason it isn’t ideal to compare company dividends.

The Gross rate is the company’s higher rate, which is calculated before considering any expenses. The Net rate is the projection after companies have calculated average mortality and expenses.

Some companies believe that the Gross rate is more honest, while some believe that the Net rate is. Both arguments have some validity.

The key takeaway is that dividends between companies won’t always be a valid comparison.

3....

Do you want the freedom to sell real estate at the top of the market and wait to invest until the right time, without having to rush cash into a new property with a 1031, but still be able to defer taxes? A deferred sales trust may be for you - this capital gains tax deferral strategy offers investors unprecedented flexibility.

https://www.youtube.com/watch?v=SvbmzY7Xqw4

In this episode, we’re talking with Brett Swarts about why investors need to know about the Deferred Sales Trust.

If you want out of the box solutions to capital gains, a rescue from a failed 1031, or to find out how to save capital gains taxes over the deferral limits, so you can maximize your real estate investing progress and momentum, in your own timing and on your own terms … tune in below!

What You'll Learn About Deferred Sales Trusts:

Why capital gains taxes can devastate your profits - and the legal strategies the IRS encourages to minimize them

How deferred sales trust benefits outperform 1031 exchanges - no time limits, no like-kind restrictions, complete investment flexibility

The exact step-by-step process of how a deferred sales trust works to defer your capital gains taxes

When to set up a DST - including the three critical windows that can save a failing 1031 exchange

Expert insights from Brett Swarts - CEO of Capital Gains Tax Solutions and leading DST specialist

What is Capital Gains Tax?

Capital gains tax can seriously reduce profits from your investments when you sell them. And there are any number of reasons you might be selling an investment.

On investment real estate, you pay capital gains taxes on appreciation over your cost basis and the recaptured depreciation of the asset sold.

However, the tax rate for capital gains is why strategies exist to defer and diminish their effect. These are legal tax incentives that the IRS actually encourages entrepreneurs and investors to use, to continue to stimulate the economy. If you can overcome a big payment now, you set yourself up to take advantage of bigger and better opportunities.

1031 Exchange Limitations

You’ve likely heard of the 1031 Exchange, which allows you to defer capital gains tax. However, the 1031 has limits. You have 45 days to identify the new property, and 180 days to close. And, it requires an equal trade—a like-kind asset of equal or greater value.

When it makes sense, it’s a great provision, but results depend on the market.

Then, there’s the deferred sales trust—which allows you to play the long game.

What is a Deferred Sales Trust?

So what is a deferred sales trust exactly? It's a powerful alternative to traditional 1031 exchanges that gives investors complete control over their timing and investment choices.

The Problem with Traditional 1031 Exchanges

When investors sell their properties, a 1031 Exchange is a popular choice and allows them to transfer ownership without realizing capital gains.

However, in a market like 2008, it isn’t nearly as effective. Investors who had taken on too much debt and overpaid for their properties were finding themselves selling high and then buying high.

If a 1031 exchange doesn’t seem right for you, or you're unable to complete your exchange, you won’t want to sit on your cash.

Otherwise, you’ll be paying up to 20% in federal capital gains taxes, plus there could be additional state and Medicare taxes, depending on which state you live in. On top of that, you'll owe depreciation recapture taxes at ordinary income tax rates.

The DST Solution

With a DST, you work with an outside trustee to sell the property within the trust. Rather than receiving a big payout upon closing, the money goes into a trust. From there, you’re only taxed as the money is distributed.

The funds from the sale allow you to diversify your investments, giving you the chance to wait for the right deal. There’s no pressure to purchase another property. Where a 1031 is quick, a deferred sales trust allows patience.

By setting up a trust, a trustee can re-invest the money from your sale in a diversified portfolio, use up to 80% of the funds to purchase new properties (without it needing to be of equal or greater value), and provides liquidity.

Deferred sales trusts put time on your side.

1031 Exchange vs. Deferred Sales Trust

Feature1031 Exchange

Deferred Sales Trust

Primary PurposeDefer capital gains taxes when selling investment or business property by reinvesting into “like-kind” property.

Defer capital gains taxes by selling to a trust and receiving payments over time.

Time Limits45 days to identify, 180 days to close

No time restrictions

Eligible AssetsReal estate only

Diversified portfolio options

Control of ProceedsA qualified intermediary must hold proceeds until reinvestment.

Proceeds are held by the DST trustee and invested per the trust agreement.

Tax TreatmentDeferred until sale

Taxed only on distributions

Best ForInvestors who want to stay in real estate and follow strict timelines.

Sellers who want diversification, liquidity, or exit from active management without immediate reinvestment.

How Does a Deferred Sales Trust Work?

A deferred sales trust can seem overwhelming with all the moving parts. Fortunately, you don’t have to do it alone. The IRS requires that you have a 3rd party “trustee” to oversee the management. This means you can partner with professionals, such as Brett Swarts, to find a buyer, make the sale, and set up investments.

The Deferred Sales Trust  Process: Step by Step

Here's how a deferred sales trust works in practice:

Seller transfers asset into trust - You work with a qualified trustee to establish the trust before the sale

Trust sells to the buyer - The trustee handles the sale transaction on behalf of the trust

Proceeds remain in trust - Instead of receiving a lump sum, the sale proceeds stay in the trust

Seller receives installment payments - You receive distributions over time according to your preferred schedule

Income is taxed as distributed - You only pay taxes on the amounts you actually receive, not the full sale amount

Investment Flexibility

And if you find a real estate deal that you’re interested in, you can partner with your trust as an LLC to take the deal. You can do so immediately, or ten years down the road—you have the freedom to make the call. And you have more investment options with a deferred sales trust, unlike a 1031 exchange.

When Should You Put a Deferred Sales Trust in Place?

If you are selling an investment property, you have three windows in which you can set up your trust:

at the close of escrow (as long as that language is put in place to establish the trust before the buyer removes all contingencies)

day 46 (as long as you send to a qualified intermediary)

and day 181 of a failing 1031 Exchange

If you attempt a 1031 exchange and can’t find a property—or otherwise don’t think you can complete the exchange within the 180-day window—your qualified intermediary can move it to a DST. That gives you more time to find a suitable property. Otherwise, you can end up paying the taxes you were working to defer.

Even if you feel that a 1031 exchange is a better fit for you now, being informed about DSTs can give you an efficient exit strategy instead of a tax nightmare.

Commercial Real Estate and Syndication

If you’re investing within a commercial real estate syndication, selling your property can be a headache. In a traditional syndication, the whole group has to agree when moving into a new deal. With a deferred sales trust, you can have a seamless move, and anyone who wants out can take their cut, pay their taxes, and be done. Not everyone needs to agree on the outcome, making it an efficient move.

A DST Gives you Options

Whether the real estate market is down, you’re looking to leave the market or you’re shifting from a failed 1031, a deferred sales trust gives you flexibility. It’s also a useful tool in your estate planning, as it can be a part of your living trust and passed on to your beneficiaries.

The real estate market isn’t always roses. Just like any asset class, it moves through a cycle. Don’t feel like you’re backed into a corner if you want to sell and don’t know where to reinvest right away.

Common Questions About Deferred Sales Trusts

Is a DST actually legal, or is it some kind of loophole?

It's 100% legal, built on IRS Code §453 (installment sale rules), and not a gray-area trick. It’s a tax strategy the IRS already knows about and allows, provided it’s structured correctly.

What reporting requirements do I have for my DST with the IRS?

You'll receive annual tax documents showing your distributions, but the trust itself handles most compliance requirements through the trustee.

What happens to my DST if I die before receiving all the payments?

The trust doesn’t just disappear; it can keep paying your beneficiaries under the terms you’ve set. They’ll pay taxes as they receive distributions, so the deferral benefit can continue across generations if managed correctly.

What happens if the IRS says my DST wasn’t done right?

If it’s poorly structured as an example, if you have a related-party trustee or control the funds directly, the IRS could call it a sham and hit you with the full tax bill. This is why working with an experienced DST professional is important.

About Brett Swarts

Brett Swarts is the CEO of Capital Gains Tax Solutions and every year equips hundreds of business professionals with the Deferred Sales Trust tool.

His experience includes numerous Deferred Sales Trusts, Delaware Statue Trusts, 1031 exchanges. He has also closed $85,000,000 in commercial real estate brokerage transactions.

Brett is an active commercial real estate broker and investor himself with experience and holdings in Multifamily, Senior Housing, Retail, Medical Office,...

Do you have a life insurance policy you’re concerned may not last, lacks guarantees, or may lapse, and you’re wondering how you could trade it in for a better model? The good news is that you have options, and you’re not stuck forever! Enter: the 1035 exchange. But, a strong word of caution: you need to understand what this entails and when it might hurt instead of help you.

https://www.youtube.com/watch?v=xzmzl8TkMDM

In this episode, Bruce and I discuss when you should use a 1035 exchange with life insurance. If you want to know the pros and cons of a 1035 Exchange--tune in below!

In this episode, you’ll learn:

What a 1035 exchange is and how it works.The reasons why (or why not) to do a 1035 exchange.Challenges you may face during the process.And more!

Table of contentsWhere Whole Life Insurance Fits Into the Bigger PictureUnderstanding the 1035 ExchangeReasons for ExchangingReasons Against ExchangingWhat You Really Should KnowThe 1035 Exchange ProcessIs a 1035 Exchange Right for You?

Where Whole Life Insurance Fits Into the Bigger Picture

A 1035 Exchange could be what allows you to ensure your life insurance is there for your entire life, however, Privatized Banking with whole life insurance is just one part of the bigger journey.

That’s why we’ve developed the 3-step Cash Flow System. It’s your roadmap to go from just surviving, to a life of significance, purpose, and financial freedom. 

The first stage is the foundation.  You first keep more of the money you make by fixing money leaks, becoming more efficient and profitable. 

Then, you protect your money with insurance and legal protection and Privatized Banking. 

Finally, you put your money to work, increasing your income with cash-flowing assets.

Understanding the 1035 Exchange

A 1035 Exchange is available through a provision in the IRS tax code, which allows you to transfer specific assets into assets of a like-kind without having to pay tax. Today, we’re talking specifically about the transfer of life insurance policies and why you would want to do a 1035 exchange in the first place.

Most often, a 1035 exchange is on the table when you have a policy that no longer seems like an ideal fit for you. If your insurance policy was not designed with you in mind or lacks guarantees, you are likely a candidate for a 1035. Regardless, if a policy isn’t working for you, know that you’re not stuck—you have options.

That said, it’s not always ideal to exchange a policy. It’s important to be informed about what a 1035 can and cannot do so that you’re not taken advantage of down the road.

Reasons for Exchanging

In some cases, it’s possible that you have a less-than-ideal policy design, and it feels like you’re continuing to pour in money with few guarantees. We see this often with universal life insurance. The problem is in the language of how some advisors pitch these products—flexible premiums aren't all that flexible.

In the later years of an in-force IUL, the cost of maintaining your policy can increase because premiums are non-guaranteed. So even though you can make flexible premium payments, you could be under-funding it and lose your policy.

To get a better idea of how your policy is performing, we recommend requesting an in-force illustration of your life insurance policy from your company. This will show you how your policy has performed and the projections for future performance. You will also see which guarantees you have, and which ones you do not. Use this information to assess whether or not your policy is doing what you want it to do.

Ultimately, we see people exchanging policies that just aren’t living up to their expectations. If you don’t currently have a life insurance policy, take some time to think about what you want to accomplish—leaving a legacy, protecting your family, leveraging your cash value, or more? And if you do have a policy, check-in and make sure it’s accomplishing what you want.

Reasons Against Exchanging

Though the tax benefits of a 1035 exchange are important, we recommend erring on the side of caution when it comes to exchanging a policy. This often boils down to cost. When you first open a new life insurance policy, you’re paying for the cost of insurance upfront—this is why your cash value takes a few years to “break even.” After a certain point, your cash value breaks even and surpasses the amount you have paid in premium.

When you do an exchange, you start over with a new life insurance policy. Which means paying the costs up-front. And if you’re not yet at the break-even point on your first policy, you could be giving up alot of capital that you'll never recover on that policy.

Another instance where the 1035 exchange may not be helpful? When the cost of insurance in your new policy is greater. You’ll have guarantees but at a much steeper cost. In which case other solutions might have better results. Regardless, know that you have options when a policy isn’t right for you. You’re not stuck.

What You Really Should Know

When it comes to a 1035 exchange, it’s important to note a few hoops you’ll have to jump through. The first is that you must still qualify for your new policy. You’ll have to go through the health exam and other application requirements to be insured. In some cases, you may qualify, but with a rated status. A "rated" insurance policy places more risk on the insurance company for insuring you, so the cost increases. However, in many cases, this doesn't pose a problem large enough to prevent you from exchanging the policy. But, if the cost of insurance is too high, you may be better off keeping your insurance and do what you can to keep it from lapsing.

Additionally, in a 1035 exchange, you can’t expect to have 100% of your premium available to you. However, you can expect to access more than 90% of the cash value that is transferred.

The 1035 Exchange Process

The process of doing a 1035 exchange is time-consuming, and commissions are low so that advisors are not incentivized to do 1035 exchanges more than necessary. Insurance companies are, first and foremost, built to protect the interests of the insured (you).

Once you and your advisor have determined that this process makes sense for you, it’s time to start the exchange. Although cumbersome, the steps of the process are in your best interest.

You’ll start by applying for your new insurance policy as you normally would. Then on the application, you’ll list the policies you own and state that you want to 1035 a specific amount of money from a particular company.

The new company will then contact the old company, who will contact you for confirmation. They will list all the pitfalls of the exchange, as well as the regulations. Once you’ve agreed, the process will continue similarly to any other insurance application process.

Is a 1035 Exchange Right for You?

You should feel confident in your decision, and a financial advisor who listens to you and helps you learn is a good starting point. They can help you determine the best path, and how it fits into your entire financial picture.

At The Money Advantage, we exist to help wealth creators build time and money freedom with cash flow strategies, privatized banking, and alternative investments free of stock market volatility so you never have to worry about running out of money. Find out your next best steps by grabbing a slot on our calendar.

Follow us by subscribing and rating us on Apple Podcasts, or The Money Advantage on YouTube and Facebook to join us for live conversations.

Learn more about how Privatized Banking is an ideal place to store cash that gives you the most safety, liquidity, and growth, so you can leverage your cash and earn returns in 2 places at the same time.

This week, we welcome John Moriarty back to the Money Advantage Podcast. In Part 1, we talked about building a family bank on a conceptual level. Now, we pull in real facts and figures to show you how private family banking looks in action.

https://www.youtube.com/watch?v=ghvEU4tXzw8

If you have considered implementing family banking and didn't know where to start or what it looked like, this is your chance to pull back the curtain. And this is not speculation. John is showing us how he personally implements the Infinite Banking Concept to be the banker and build his family bank. 

Now is your opportunity to see behind the scenes! You’ll see a high level of funding, cash value, how he is using policy loans, the internal growth of each whole life policy, the death benefit, and how he's getting a front-row seat to opportunities. Why? It's all because of this family banking system and tool for storing cash reserves.

Table of contentsIn This Episode, you'll learn:Where Private Family Banking Fits into Your Cash Flow SystemThe "Mystery” of the Family BankThe Basics of a Family Banking SystemEnjoying Your MoneyPrivate Family Banking with Whole Life InsuranceWhy Would You Want to Borrow Your Own Money?The Long GameStart Your Family BankGet the Moriarty 11-Year Case StudyBook A Strategy Call

In This Episode, you'll learn:

What it takes to become your own banker and start a family bank

How to build a family bank with whole life insurance policies over time

What you can and cannot do with a whole life insurance policy

Why you should not fear interest charges

How to structure your repayment strategy

Where Private Family Banking Fits into Your Cash Flow System

Family Banking is just one step in the greater Cash Flow System.

It fits into Stage 2, a part of keeping and protecting your money. 

We said before that Privatized Banking is like the peanut butter to your cash flow sandwich.  It’s wedged between Stage 1 – keeping more of the money you already make – and Stage 3 – increasing your cash flow from investments.

And it helps you do everything else better. Infinite Banking increases your financial efficiency, enables you to keep more of what you already make, amplifies your cash-flowing asset strategy, and accelerates your time and money freedom.

The Infinite Banking Concept is the how of keeping and protecting your money.  And a whole life insurance policy is the what.

The "Mystery” of the Family Bank

The idea of Infinite Banking, and thus family banks, is often shrouded in mystery. Mainstream financial advice makes it seem more difficult and unattainable than it is. Yet we know that what it boils down to is sound money principles--how you take control of the banking function yourself.

If you consider yourself to be a disciplined person, you can implement and benefit from family banking strategies. 

The Basics of a Family Banking System

While saving is the first component of private family banking, Infinite Banking can be considered a system for cash flow management. A whole life insurance policy offers a way to take your savings and optimize it from a cash flow standpoint. While this concept is not new, whole life insurance policies became more publicized when Nelson Nash wrote Becoming Your Own Banker.

The benefit is that you can customize whole life insurance to perform in ways suited to your goals. Then, you can leverage the cash value of your life insurance to take out loans against your policy, instead of going to the bank. And all the while, your policy cash value continues to grow, uninterrupted. 

With the right strategies, you can finance virtually anything you can imagine. Can you say the same for banking institutions? Your personal and business economies can both benefit from your ability to leverage your assets. 

Enjoying Your Money

In a well-structured strategy, not all of your “moves” have to be related to wealth accumulation or investments. John himself tells us, and those he works with, that his strategies allow him to do the things that he wants to do as well. In many instances, the way that he utilizes his cash value helps him to participate in activities that he enjoys, too—like take family vacations or go on golf trips. 

Because your private family banking System makes your money more efficient, it excels as a fund for both emergencies and opportunities. A well-executed strategy gives you limitless possibilities. The optimization of your dollars provides one of the most rewarding benefits—the ability to finance things that bring you joy, too. 

Private Family Banking with Whole Life Insurance

Since 2009, $1.9 million has been saved into the Moriarty family bank. His family has borrowed roughly $2 million from the family bank. And overall, they have repaid only $1 million to the family bank. 

Rather than a linear system--put in, take out, replenish--he has established a process. John repays some life insurance loans more quickly because they do not add to his net worth—like vacations. Investments with monthly cash flow are an opportunity to make incremental payments. Other times, there are long term investments with an expectation of future liquidity. Those “windfall” moments are opportunities to pay down life insurance loans in a lump sum and cycle money into the system. 

The benefit of a whole life policy loan is that you can pay back whenever and however your choose—the important part is that you have a strategy to do so. Being reckless in how you borrow against your whole life insurance policy can put you in a precarious position. 

Rather than treating your family banking system as a linear process, consider it a living system.

Why Would You Want to Borrow Your Own Money?

This is an important question—and one that can be difficult to understand when typical financial advice trains you to view interest as something to avoid at all costs. 

However, think of the opportunities that arise when you have access to your cash—and have the diligence to pay yourself back. You lessen your risk of depleting your emergency/opportunity fund because there’s more incentive to be disciplined. When all your savings are in the bank, how likely are you to repay yourself in addition to continued savings? 

Furthermore, private family banking enables you to leverage the power of your money on investments that a bank may be hesitant to finance. More options are available to you when you become your own banker. 

And then, of course, there is a mathematical component. In John’s example, he was able to receive financing at 5%. It’s easy to look at that and be skeptical. In the bigger picture of his personal economy, however, that 5% should not be a deterrent. He can use that life insurance policy loan to invest in opportunities that earn far higher rates of return. Additionally, his life insurance policy continues to earn uninterrupted compound interest, so he is earning a return in 2 places at the same time. So the whole time he has this loan, his cash value is still working for him and increasing over time. More money becomes available to him regardless of how quickly he pays down his loans.

Ultimately, he has a repayment strategy that allows him to make the most of what he has. 

The Long Game

In the first few years, building a private family banking system of whole life insurance policies can be difficult to wrap your head around. It’s a long-term wealth-building journey, and the first few years offer limited liquidity. While you can still utilize your policy, it does not have the same wow-factor as a policy that has been around for more than 10 years. Yet somewhere between the 5th and 9th year, you hit your break-even point—and everything after that is pure growth. Meaning that from that point on, your cash value will be worth more than you put into it.

Private family banking is about the long game. It takes patience and work; though the best things in life rarely come without effort. When you buy assets and finance them with a financial institution, you often need a down payment or other collateral. Conceptually, that is no different than what happens with a whole life insurance policy. On the front end, you relinquish some of your access to capital, which covers the cost of insurance. On the back end, you reap the long-term rewards. Your banking system continues to improve over time. 

Start Your Family Bank

A whole life insurance policy is not a stagnant asset—it is not an account where you lock your money away until you turn 65. Your cash value is money that you get to use and enjoy over your lifetime—earning uninterrupted compound interest on money you can also use is something to celebrate. On top of that, the extra protection a death benefit provides for your loved ones is priceless. 

Get the Moriarty 11-Year Case Study

Annual statements from the life insurance company for each whole life policy in the Moriarty family bank

Policy cash values

Death benefit

Policy loans

Interest payments on policy loans

Book A Strategy Call

Do you want to coordinate your finances so that everything works together to improve your life today, accelerate time and money freedom, and leave the greatest legacy? We can help!  

We spend a lot of time and attention educating and sharing the benefits of private family banking, so it can come across like we’re the whole life insurance people. However, when it comes to working with clients directly, we don’t start with products. 

Family Banking is the middle of the process, not the start, not the end, and not the complete picture. Helping you think differently about your money starts with your individual financial picture and goals. 

Book an Introductory Call with our team today https://themoneyadvantage.com/calendar/, and find out how Private Family Banking, alternative investments,...

https://www.youtube.com/watch?v=jFbebed_F78

Want to know what happens to your real estate portfolio after you’re gone? In this episode, we’re talking with Ron Phillips—CEO of RP Capital, a real estate brokerage—about his client who passed away. It turns out, his family didn’t even know what assets he had, or what to do with them, and it almost cost them a fortune in taxes. Tune in to hear what hoops they had to jump through, and how to avoid the same wealth transfer risks, so you and your family can be much better prepared. 

Table of contentsIn this episode with Ron Phillips, you’ll learn:Where Legacy Fits In The Bigger PictureLegacy & Wealth Transfer Risks, Conversation Highlights from Ron PhillipsHow Mindset Affects Your Real Estate DealsRon’s Real Estate BusinessPlaying to WinRon's ClientsWealth Transfer RisksWills and ProbateWhat is a Legacy?Who is Ron Philips?Links and MentionsWant to Talk About Family Banking with Whole Life Insurance?Thanks for Tuning In!

In this episode with Ron Phillips, you’ll learn:

The importance of managing your mindset in lifeThe costs of not preparing and communicating your legacy wellHow to ensure your assets do the most good for your family even after you’re goneWhy it’s crucial that your heirs know what you haveThe wealth transfer risks of putting off your estate planningHow to make leaders in business and in your family

Where Legacy Fits In The Bigger Picture

Creating a legacy is the capstone of a life well-lived.  It’s the end goal of a life and business you love, and the greatest mission of our lives.  But we need an entire financial system to support our ability to do the most good.

That’s why we’ve put together the 3-step Entrepreneur’s Cash Flow System.  

The first step is keeping more of the money you make.  This includes tax planning, debt restructuring, cash flow awareness, and restructuring your savings so you can access it as an emergency/opportunity fund.  This step frees up and increases your cash flow, so you have more to save, and consequently, more to invest.

Then, you’ll protect your money with privatized banking, insurance, and legal protection.  

Finally, you’ll put your money to work and get it to make more by investing in cash-flowing assets to build time and money freedom and leave a rich legacy.

Legacy & Wealth Transfer Risks, Conversation Highlights from Ron Phillips

How Mindset Affects Your Real Estate Deals

Once you figure out how to help others, you’ll begin to reap benefits in your own life. You’ve likely heard, “If you help enough people get what they want, you’ll get what you want.” In practice, you often get 10x that!

(7:40) When Ron’s deal was rejected, he felt destroyed. Yet he woke up the next day, he reflected on what he had learned and studied. He knew as long as he could solve the problem at hand, he could make a worthwhile deal. Then, he ended up launching his career, which has only continued in its success.  

(10:05) Real estate, life business, relationships—everything throws wrenches into your world. Nothing goes the way it’s supposed to, all the time. You have two choices in how you proceed. You can think that the world is against you, and that you can’t win, or you can figure out a way through it. 

Ron’s Real Estate Business

(12:38) Until 2005, Ron was in the business of rehabbing houses, until HUD changed the guidelines. So he “went out of business” virtually overnight. He essentially became a landlord, though it was not his goal. So Ron adapted.

What he discovered was, many people don’t want to be landlords (much like himself). Though they do have an interest in real estate. Ron had the teams and the know-how, and now he helps other people find success when they lack the right resources. This started before turnkey operators were really a thing. However Ron resists the urge to describe his business as a turnkey operation. 

(20:20) … people think when something is turnkey that they don’t have to do anything. It’s not that the property isn’t ready to go, or that the property doesn’t have a tenant in it. All of that is true. But turnkey just gives this feeling of, “I don’t have to check my bank account because this thing is going to just magically happen.” And that’s just not how real estate works. It’s not how anything works. 

Playing to Win

(23:30) If you want to play the money game to win, you must move your assets according to what the markets are telling you. Enjoy your market in its prime, and then move when the winds change. You increase your income, cash out, and do it again.

If you wait around in one market, watching it go up and down like so many do, you stunt your growth. Your exponential power lies in the ability to watch multiple markets and shift your assets for growth.

The power behind this strategy is that if you have capital and you’re looking to have an additional source of income, you can do it while you work.

(24:45) And once somebody gets to this point, there are all these really cool layers you can add. If you can take your income and then dump it into your own bank through cash value life insurance, you’re now double arbitraging your money, and the engine just goes faster. Yet it means nothing if you don't have an estate plan that negates wealth transfer risks.

Ron's Clients

When you build your legacy, what happens when you pass away? How do you make sure that the goals that you have and the life you choose to have continue through your legacy? 

(30:33) Recently, two people that Ron worked closely with passed away. The first was a lender his company had done hundreds of deals with him. He was a young guy, with young kids, and he was an integral part of their team. 

No one really expects to pass on young, but it is critical to have to plan that mitigates wealth transfer risks, should it happen. The last thing you want is for your legacy to be a problem for your loved ones. And if you don’t plan for this event, you’re more likely to leave a financial mess—especially if you have significant assets. 

Wealth Transfer Risks

The other death was a long-term client, and one of Ron’s earliest clients. He died with a significant net worth, leaving his family clueless about the small empire he built. In fact, his wife wasn’t in a capacity to be handling the financials. And the reason Ron caught this was because they were in the middle of a 1031 exchange, so he reached out to the kids to discuss the next steps.

The client told Ron all the time that he had invested for his grandchildren. His investments were providing monthly cash flow.

But, his kids wanted to sell and be done with it because they didn’t know what they inherited. They had no concept of the scope of what they were given.

If you don’t provide specifications, your heirs will do what they want or think is best, even if it’s not best.

That's why it's not a good idea to keep your assets quiet from your family because you run the risk of your legacy disappearing (despite your intention).

Wills and Probate

Often, people believe they’re fully protected because they have a will in place. Yet there are other crucial aspects of a sound estate plan.

Trusts are a crucial element. And trusts are not as expensive as you’d think. What you don’t want is for your will to be contested after you pass because you hadn't communicated your plan effectively. 

Anyone can contest a will, and then it must go to probate. And then probate lawyers receive a portion of the estate. In order to divide an estate, assets must be liquidated. That means the impact of your legacy plan will be minimized or rendered null.

If you don’t have a legacy plan, yet you’re investing and accumulating assets, consider what you really want from your assets. What is the point of working so hard if you don’t have an idea of what you want? 

What is a Legacy?

One scenario, without properly communicated plans, is that your wealth disappears. Say your heirs do sell everything in a fire sale, and distribute the money. It dries up at rapid speed because your heirs aren’t invested in the process of wealth creation. If they were kept in the dark, they will lack the know-how to continue your legacy. This is the largest wealth transfer risk you run, by not planning your estate.

When you have a wealth creator on one hand, and they don’t transfer that knowledge along with the assets, the heirs don’t have the knowledge to be good stewards of that money. 

If you do not pass on your knowledge, your legacy will not continue. In business, if you do not create leaders, you’re not a leader yourself. It’s the same within your family. If you hoard and keep secrets about your assets, yet intend to pass them on, then you’re setting your legacy and your family up for failure.  

Wealth comes from creation, it’s not something you just have. If you can’t teach others to be creators, your legacy of wealth stops with you. 

We don’t get to take our wealth with us when we pass. It will either benefit the people we love when we’re gone, or it won't. The proper channels make your legacy a reality. 

Who is Ron Philips?

Ron Phillips is a leader among leaders... a trainer, coach, and mentor in the real estate investment world. He has an unstoppable passion for helping busy professionals & and business owners increase their income and net worth, and play the real estate investment game and WIN.

Ron is the Founder and CEO of RP Capital ‒ a Real Estate Brokerage specializing in residential income-producing properties. More than a brokerage, RP Capital is Ron’s platform for educating, training, and empowering emerging and seasoned investors. Ranked in the top 25% on the INC 5000 list of America’s Fastest-Growing Companies in 2015, the firm offers a proprietary software suite so its clients can create their own Real Estate Wealth Plan(TM) using live inventory and produce a proforma for those p

We frequently discuss high cash value life insurance here at the Money Advantage, yet with the financial uncertainties of COVID-19, how safe are life insurance companies?

https://www.youtube.com/watch?v=j9TZZf6hYjY

How strong is the life insurance industry really? What impacts do today's low-interest rates, economic turmoil, and the pandemic have on my long-term growth rates and the policy guarantees? How do they affect the life insurance industry as a whole? Do insurance companies have enough reserves to weather low returns and higher costs? Are they able to maintain their guarantees? Are they still a safe place to put money? 

If you want to see how low interest, low bond yields, and higher mortality can impact you as a policy owner, know if you can trust whole life guarantees for cash value and death benefit, and find out how strong this nearly indestructible industry is during unprecedented times, so you can know what to do, tune in now!

In this episode on the safety of life insurance companies, you'll learn:

How interest rates and bonds affect the life insurance industryWhy the US is better off right now than you'd thinkA brief history of the life insurance industryThe "checks and balances" of mutual insurance companiesAnd why COVID isn't impacting the industry as much as you'd expect

Right now, many financial products and systems are in flux. That uncertainty may not instill confidence in your financial future. COVID-19 has certainly impacted the financial sphere, so let's unpack what that means for life insurance.

The life insurance industry has long been a pillar of certainty and financial stability, and fortunately, we have high hopes that this will continue to be the case. Historically, these companies have outlasted even the toughest of financial straits.

Table of contentsThe Safety of Life Insurance Companies is a Part of the Bigger Picture of Creating WealthHow Safe Are Life Insurance Companies Facing Internal Challenges?The History of the Life Insurance IndustryLow Interest RatesBond Yields Follow Interest RatesMutual Companies Are Positioned for the Long-GameMortality Isn't a Current ConcernSo How Safe Are Life Insurance Companies? Resources to Evaluate the Financial Safety of Life Insurance CompaniesReady to Start Your Life Insurance?

The Safety of Life Insurance Companies is a Part of the Bigger Picture of Creating Wealth

While the safety of the industry is a critical piece of protecting and preserving your wealth, it’s just one small piece of the bigger journey to creating time and money freedom.

That’s why we’ve developed the 3-step Cash Flow System. It’s your roadmap to go from just surviving, to a life of significance, purpose, and financial freedom. 

The first stage is the foundation.  You first keep more of the money you make by fixing money leaks, becoming more efficient and profitable. 

Then, you protect your money with insurance and legal protection and Privatized Banking. 

Finally, you put your money to work, increasing your income with cash-flowing assets.

How Safe Are Life Insurance Companies Facing Internal Challenges?

Many of the current concerns around whole life insurance relate to the low interest, low bond yields, and low internal growth we're seeing right now. We don't blame people for translating this slow-down as a warning sign. In addition, there's a possibility of higher claims in a pandemic—and will the companies have enough capital to weather that storm?

If you're considering the impact of these factors on your life insurance policies, you're on the right track. It's important to stay ahead of the curve for your financial well-being. So, let's look into some of these concerns and find the truth in these statements.

The History of the Life Insurance Industry

Fortunately for policyholders, the life insurance industry has a long history of navigating tumultuous financial times. Historically, insurance companies have paid dividends each year for more than 100 years, despite dividends not being guaranteed. That means companies paid dividends in the 2008 crash, during multiple wars, and even the Great Depression.

Due to the actuarial nature of life insurance and their long history of data collection, mutual insurance companies have been very accurate in their assumptions. Even when they haven't paid exactly at their projected rates, the industry as a whole has year-in and year-out consecutively paid dividends. Therefore, these companies have a significantly long history of being profitable while paying claims through the worst of times.

So, let's look at what we're dealing with and see how it measures up to the life insurance industry's historical precedent.

Low Interest Rates

While interest rates are low, it's not an immediate cause for fear. There's a reason for low rates, and it all starts with banks.

If you look at the federal funds rate, what you're seeing is the rate at which banks and other institutions lend money to each other. By law, banks must keep a percentage of their customer's money on reserve—otherwise known as the money they can't earn interest on (by lending it to customers). As a result, banks toe the line as much as they can, lending money back and forth between banks.

The federal funds rate is used to control the supply of these reserves, and thus inflation and other rates.

Raising the federal funds rate makes it more expensive to borrow money. This lowers the supply of available money, thus increasing short-term interest rates and keeping inflation in check.

Lowering the rate has the opposite effect, and actually increases the money supply by lowering short-term interest rates.

The Federal Reserve is using these low rates to boost the economy. However, this means that not only is it hard to get a good rate on liquid money right now, but there's also an indirect impact on the life insurance companies.

While the low-interest rates are not ideal for the insurance companies, they're not detrimental. They're a temporary situation. The federal funds rate has, in fact, gone through an ebb and flow over the years.

Bond Yields Follow Interest Rates

Currently, the yields on bonds are low. The falling interest rates actually push the price on bonds higher, which, in turn, lowers the yield of the bonds. It's normal to speculate what happens to the life insurance companies at this point, as many companies are heavily invested in bonds. The lower their returns, the lower the dividends that companies can pay. So naturally, the low yield on bonds slows the growth of life insurance through interest and dividends.

The good news? Life insurance companies, by nature, have very conservative investment structures.

On top of that, the industry is highly regulated, with the bulk of their investments in investment-grade corporate bonds. These bonds all have varying term lengths, purchased in quantities not available to the individual investor, and have strategically overlapping maturity dates due to bond laddering. That means that there are always bonds paying out. And this provides the capital to purchase new bonds at current rates. The long-term bond diversification strategy increases overall returns and long-term stability.  

While low bond yields are nothing to celebrate, mutual life insurance companies have successfully and masterfully navigated low rates for the last 20 years.

Mutual Companies Are Positioned for the Long-Game

Participating whole life insurance companies, where policy owners participate in the profits, are invested in the long-game. Because these companies offer certain guarantees, they have to be prepared. Stock-held companies, however, plan over shorter periods of time.

In fact, mutual companies work much in the same way we encourage policyholders to operate. They have large cash reserves, like a policy's cash value, in case of opportunities. And when relatively high-yield bonds were dumped on the market at low prices, these companies had the capital to jump on the opportunity. For carriers who made that move and are willing to wait, it should prove to be a good decision as the bonds mature.

Mutual companies also operate on a required minimum of a 1:1 ratio. That means that for every dollar allocated to paying claims, there's at least a dollar in the reserves.

Mortality Isn't a Current Concern

And now, we've come to one of the largest "what-if" scenario on everyone's mind. What if the increased death toll makes the industry unstable? And for the life insurance industry, it has proven not to be a huge concern.

Whole life insurance works because of a carefully designed system that supports death claims. After all, the death benefit is guaranteed as long as the policy is in force. And death is an event we all experience. Without the proper structure, life insurance companies would have felt the strain long ago.

One of those structural "balances" is that companies weigh the risks of insurance through health exams. Unfortunately, some health conditions can prove to be too high a risk for life insurance companies to insure. Disqualifying Conditions with a high chance of death (although some can still purchase insurance at a significant markup).

Of course, this matters because COVID-19 has had a greater effect on those with pre-existing health conditions. And while this can be the cause of unfortunate and pre-mature deaths, those conditions likely mean they're not insured.

And while this is not always the case, such as those who developed health conditions after becoming insured, COVID deaths have not proven to be disruptive to the life insurance industry. One carrier with a lot of business in New York confirmed that while there was an increase in death claims due to COVID, it was not significant enough to warrant structural changes within the company.

With the death rate of COVID in decline,...

https://www.youtube.com/watch?v=_KcOV9DhFkE

Considering estate planning, but not sure how to make it work best for your family? Wondering how to balance your unique age, stage, personalities, and goals?  Does estate planning feel constrictive, or your ambitions seem bigger than what you can accommodate with a finite plan?  Do you wonder how you could possibly know what’s best 30 years from now when you’re not sure who your children will become? 

Today, we want to help you wrestle the giant octopus of long-range planning. Bruce and I are talking with my estate planning attorney, Stephen Haynes, about solving special considerations with your estate plan.

And this will be a special treat! We're not just going to talk theory about estate planning. We're inviting you in and showing a sneak peek into how we created an estate plan for our family. 

So if you want to recognize the pros and cons of various estate transfer strategies, achieve the best balance of asset protection, creditor protection, control, and ownership, and find out how to design your estate plan to solve your needs best so you can strengthen your family with how you pass on wealth, instead of causing future challenges, tune in now!

In This Conversation about Custom-Designed Estate Planning with Stephen Haynes

Deciding how to transfer trust assets to children in a way that provides for their needs and helps them become empowered and not entitled.

Solving the tension of gifting assets outright vs. in trust, and why you may consider one over the other.

How to achieve the balance of asset protection and creditor protection with control and ownership, and reduce the risk of estate taxes.

The role of the trustee, the goal of the trust to be a relationship, how to select a trustee, and how to set up your children to have a good relationship with the trustee.

Hear how we're solving the potential problem of children seeing that a trustee is trying to keep them from their money.

Finding the middle ground between leaving direct guidance to the trustee with rigid wishes vs. leaving discretion to the trustee.

How to direct your money to be used the way you want, while also providing for the freedom and flourishing of each individual in generations beyond you.

How you can use life insurance to create perpetual, generational wealth.

Where Estate Planning Fits into Your Cashflow Creation System

Encircling your family and assets with a bulletproof estate plan will maximize your peace of mind.  But it’s just one small step of a greater journey.  

That’s why we’ve put together the 3-step Entrepreneur’s Cash Flow System.  

The first step is keeping more of the money you make.  This includes tax planning, debt restructuring, cash flow awareness, and restructuring your savings so you can access it as an emergency/opportunity fund.  This step frees up and increases your cash flow, so you have more to save, and consequently, more to invest.

Then, you’ll protect your money with savings, privatized banking and legal protection.  This is where estate planning fits in.  You’ll know that no matter what happens to you, your wishes will be carried out, your assets will remain intact, and your wisdom will empower generations after you. 

Finally, you’ll put your money to work and get it to make more by investing in cash-flowing assets to build time and money freedom and leave a rich legacy.

Take Action to Begin Your Family Legacy Today

Take the next steps today.

As Bruce says, "Make small steps, but quality steps."

You don't have to leap the whole chasm all at once.

Today's small step may look like taking a minute to write down what's important to you. This may become the start of your personal values or vision statement.

Or, if you are ready for a conversation about your estate planning or life insurance, your next step could be scheduling a conversation.

Find Out More About Stephen Haynes

Discover more about Stephen Haynes, Davis Law Group, or contact him directly at [email protected].

Book a Strategy Call

We offer two powerful ways to help you create lasting impact:

Financial Strategy Call – Discover how Privatized Banking, alternative investments, tax-mitigation, and cash flow strategies can accelerate your time and money freedom while improving your life today. Let us show you how to align your financial resources for maximum growth and efficiency. Book a Strategy Call with our team today.

Legacy Strategy Call – If you want to uncover your family values, mission, and vision, and create a legacy that’s about more than just money, we can guide you through the process of financial stewardship and family leadership. Save time coordinating your family’s finances while building a legacy that lasts for generations. Book a Legacy Strategy Call to learn more about how we can help.

We specialize in working with wealth creators and their families to unlock their potential and build a meaningful, multigenerational legacy.

Thanks for Tuning In!

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