MY THOUGHTS ON UNIVERSAL LIFE – AND VARIABLE LIFE
By R. Nelson Nash- Author of “Becoming Your Own Banker: The Infinite Banking Concept”
“Universal Life was invented in the early 1980s by E. F. Hutton, a stock brokerage firm that, in my opinion, knew nothing about life insurance.
Remember the television commercial, “When E. F. Hutton speaks, everyone listens.” Have you heard him say anything lately? They don’t exist anymore! UL was nothing more than “one-year term insurance with a side fund of an interest-bearing account.” It was an attempt to “un-bundle” the savings element and the life insurance element of a whole life policy — something that can’t be done, if one understands the concept of whole life insurance.
This happened during a time of high interest rates and it “looked good” in the early years of the policy. When I first saw the policy I ran some illustrations and they kept “falling apart” when the insured attained age 65 to 70. The cost of one-year term became prohibitive at the advanced ages and “ate up the cash fund” from that point forward. Therefore, I never sold one of them when I was in the business — and I surely wouldn’t buy one!
Next came Executive Life out in California. They made a “big splash” in the business and ultimately went broke. I understand that policy owners actually lost money with their policies.
Does the name, Michael Milken, mean anything to you? He did prison time as a result of his financial shenanigans. Would you guess where he was selling all of those “junk bonds?” If you replied, “Executive Life,” then go to the head of the class! Would you like your financial future in the hands of people like that?
Lastly, there came Variable Life, invented by Equitable Life Assurance Society. It was nothing more than one-year term insurance with a side fund of a mutual fund. There are more mutual funds than there are stocks. No mutual fund is any better than its manager. The great preponderance of mutual fund managers had never seen a down-turn in the market until the recent one.
I suggest that you read THE TRUTH ABOUT MUTUAL FUNDS. Then read THE BATTLE FOR THE SOUL OF CAPITALISM by John Bogle, the originator of The Vangard Fund. These two books are vital to the understanding of what goes on in that industry. Also read PIRATES OF MANHATTAN by Barry Dyke. Upon completion of these three books you should be adequately informed to make an intelligent decision as to whether you should consider Variable Life.
I was with Equitable Life when Variable Life came on the scene. I never sold one of those policies — and I would never buy one. I do not recommend its use for the Infinite Banking Concept.
The tragedy of our times is that the life companies never spent any time on understanding Dividend-paying Whole Life Insurance and teaching the buying public its characteristics.”
The idea of using a Universal policy for the concepts of banking, as Nelson states, is not an effective approach as it eats away the cash value in later years, and most policies will actually lapse even in the illustrations. However, the fact that the policy will erode due renewable term prices is not the only problem, and is probably the one to worry least about. The “banking” side of the concept, the part that demonstrates the principles of banking, and how to actually translate interest and opportunity cost into wealth, is now obsolete. When borrowing from Universal Policies you will not be credited the interest you pay back to yourself, it goes the the general growth of the company, and to the stock holders. Whole life policies will also pay the interest to the stock holders, but YOU are the stockholders. The policyholders in mutual companies are the stockholders. Without the banking side of the equation you simply have another investment vehicle with no guarantees, and an ever increasing cost of insurance that must be paid.
“But can’t I just ‘cash in’ when term gets too expensive?” Sure you can, but here come all the taxes, and you have eliminated one of the greatest benefits that come from life insurance, the tax advantages. You’re growth will be as ordinary income, you will have no insurance, and the benefits that caused you do consider life insurance as a wealth creation tool are gone.
Christian Financial Planning
October 20, 2008
Understanding the importance of creating a solid foundation is what we call christian financial planning. The importance of a strong foundation that is without risk is an essential part to creating wealth.
Christian Financial Planning will enhance your view of the future and give you safety and comfort in times that such seems hard to find.
Becoming Your Own Banker: The Infinite Banking Concept
October 19, 2008
Creating wealth is not about picking from a variety of products, as the traditional financial planner will have you think. Let me ask you something… if you could choose between Tiger Wood’s golf clubs or his swing, which would you take? Kind of obvious, but his swing. His clubs are useless without his swing. Financial planning is no different. Creating wealth is not a product, but a PROCESS. The process of becoming wealthy is enhanced by learning and implementing the concept of the infinite banking system. In essence, you become the bank for yourself, and your wealth will grow exponentially, without worrying about the loss of principle or interest.
Infinite Banking is a process that allows you to recapture the purchase price of any purchase you make and pay yourself the interest that normally would be paid to another financial institution. Many Americans are searching for safe ways to create wealth. At the same time these individuals search for products and investments with higher rates of return, they need money for things like cars, homes, medical/dental, vacations and so forth. The process of becoming your own banker is a way to utilize your capital as a bank would, but this time you are not only the banker, but the borrower.
By controlling your capital, loaning it out, paying it back diligently and honestly wealth is created almost by accident.
You need to understand that even using your own money and paying cash for an item has a cost to it. You either give up the interest that you could have earned by paying cash, often referred to as opportunity cost, or you pay someone else interest to use their money, there is no other way.
By becoming your own banker you pay yourself the interest, recapture the purchase price of the item, and keep complete control over your assets. Incidentally, use these banking concepts in a business structure and you gain additional tax benefits that make the concept even better.
By Becoming Your Own Banker you will dramatically enhance your wealth, just understanding how money can flow back to you, but by using the right vehicles, it will enhance the system and give advantages such as these:
Tax Deferred Growth
Tax Free Income
Income Tax Free Death Benefit
Collateral
Competitive Returns
Unlimited Options (Loans)
Unlimited Contributions
Creditor Proof
No Probate
Liquidity, Use, and Control
Passive income for Golden Years
These are very impressive, and by doing it right this can be accomplished.
Whole Life Insurance for the Purposes of Banking
October 18, 2008
Becoming your own banker is the concept of creating wealth by implementing the banking process into one’s financial life, through the use of participating, dividend paying, whole life insurance. But why whole life insurance? Isn’t that just too expensive? How could it ever work if you’re paying for insurance?
Banking is defined as, “engaging in the business of keeping money for savings and checking accounts or for exchange or for issuing loans and credit etc.” Most people are on the side of depositing money and borrowing, while allowing the bank to use their money to issue loans and credit, much of which goes right back to you as the borrower, but you have to qualify to get it, and pay interest too. But let’s take a look from the banker’s point of view, the lucrative part of the business. What do you do the moment you get the deposited money as a banker? Simple, you find a borrower for the money. You want it to grow. As they make their payments you try to find more places to put that money, so every payment is now making money, and then the payments from those payments, etc. This is know as the velocity of money. Every dollar deposited will yield multiple returns.
So the questions becomes this, if at times you are the depositor, and the borrower, why not become all three? The depositor, the borrower, and the banker! The only difference is you won’t have to pay a middle man to give you the money that already belongs to you! So the outcome will be making your money grow safely, while maintaining liquidity use and control. Becoming the banker is very lucrative, but most importantly, it is a safe use of your money, and you will no longer lose interest to banks. Here is a real example that proves that the METHOD you use can make a large impact on your financial worth, and that the banker always wins.
Car Purchase- $30,000
Paying Cash-
If you pay cash for your vehicle, it looks like this:
Purchase $30,000
Car Value $15,000 (after 5 years)
Adjustment to net worth: -$15,000
Financing:
By financing the vehicle through a banking institution it looks like this:
Loan $30,000
Interest Rate 8%
Years 5
Payment $608
Total Pmts ($36,500)
Car Value $15,000
Adjustment to Net Worth: -$21,500
Becoming Your Own Banker
Borrow from “MY BANK”- $30,000
Interest Rate 8%
Years 5
Payment $608
Total $36,500
Car Value $15,000
Increase $51,500
Minus the initial savings
Adjustment to net worth: Positive $21,500
So we can see that by becoming the banker, and using our own money like a bank would, we increase our wealth, and we do it safely because we are in control. We are most likely going to buy multiple cars in our lifetime, so you have the choice to be negative, or positive after those purchases.
Becoming your own banker is not about whole life insurance, but the banking process, so the question still remains, why whole life? The reality is we have looked at other options, an interest bearing savings account, retirement plans, and others, but nothing comes close to the power of whole life insurance as a banking solution, when done right.
Traditional whole life policies require the lowest premiums and emphasize high death benefit, leaving minimal cash value. But de-emphasizing death benefit, and emphasizing high cash values, you will create a self funding system in 4-6 years, and you will have cash values nearly equal to the dollar amount you have put in, including your cost of insurance. This is where it gets exciting. At this point you have a self funding system, meaning no out of pocket premium payments. Within the policy your money will grow tax deferred, and you can draw it out tax free as well. As the policy holder, you have priority over the money in the policy, meaning you have complete liquidity, use, and control. You may borrow it at any time, and because a policy owner is also part owner of the company, that interest will be credited back to you. You are also entitled to part of the companies growth, in the form of dividends. Because dividends are not a factor of cash value, you could borrow all your cash value and still get your dividends at the end of the year, meaning that you are essentially getting a return on your money, even though you are using it for different purposes. This creates exceptional growth within you policy, and is and added benefit that no other vehicle provides. On top of all this, you will always have a death benefit that can be delivered tax free to your beneficiaries. If they learn the concepts correctly and place this money into additional polices, it can be said that every dollar will never see taxes again.
The advantages of whole life insurance for the purposes of banking is exceptional. Banking is the focus, whole life just happens to be the best place to implement it. Its advantages are incredible as you can see. You can literally recapture the cost of everything you purchase.
Contact Us for more info, or a free webinar.
Traditional Financial Planning vs TRUE Financial Planning
October 18, 2008
I often ask the question, “How much energy would you like me to spend reducing your standard of living in order to find more money for you to save?” You can imagine what response I get, “Uhh…none,” or “we just don’t think that’s possible, we like how we live.” This is, of course, an unrealistic question, but its certainly the most common. We understand real wealth creation, and know the right ways to increase your savings, without having to decrease your standard of living to do so.
There are two ways to fill a bucket with holes in it. Plug the holes and even at a trickle the bucket will fill, or pour more water in. Which have your financial planners been employing in the past? They want your to pour more water in, Its all about more money, and finding better investments that yield better returns. Though this is sought after, its may not produce the best results. You see, no one wants to reduce their standard of living to increase savings, and the misconception is they have to…but they don’t.
As leaders in financial strategies and wealth creation, we understand that there is a lot of money you are currently losing either unnecessarily or unknowingly, in the form of wealth transfers. These are the holes in your bucket. We show you how to recapture these dollars that you are losing, whether it be in the way you purchase cars, if you pay cash or finance, the way you handle your debt, deductible vs non-deductible, and many other things. Bringing this money back to the table not only saves you from losing it, but allows you to increase your savings, while INCREASING your lifestyle to better enjoy the journey along the way.
Wealth is about a lot more than rate of return. Not understanding these principles now, with an economy as unsafe and insecure as ours, can yield devastating results. Its now time to understand how you can create wealth the right way, without having to risk your retirement to do so.
It’s Time To Rethink Your Retirement
October 13, 2008
In recent weeks we can all agree that financial fear and unrest for most of America is at an all time high. Many of the financial institutions and products that were once believed to be unbreakable foundations have crumbled.
For many years now Americans have been advised to build their financial foundation on 2 primary assets – their home and their 401(k)’s (retirement plans). The vast majority of these retirement plans are invested directly in the market.
How is that working for them today?
The real-estate market has tumbled and now we’ve watched this past week’s debacle in the stock market take away over a trillion dollars of wealth. Credit is tightening and the confidence index is at an all time low. What else could go wrong?
Less than 2 month ago, while channel surfing, I happened upon Suzie Orman’s show. Suzie Orman is touted as one of America’s renowned financial advisors. Her advice to a caller was, “Put all you can into your 401(k) and then with your discretionary money put it towards your mortgage.”
Good advice? Let’s see….
YOUR HOME:
This caller undoubtedly has lost value in their home. My bet is that every extra payment made has been lost. Equity in a home is NOT a safe strategy. Having cash for emergencies, opportunity, and choices IS a safe strategy. If this caller needs to access some of their equity to get through the “hard times,” what do you think their chances are in going to the bank for a loan right now?
What if this caller had separated their equity, in a safe account, from their home? Would they need to go to the local bank for a loan? NO! Could they potentially ride out the storm? YES! Would they have some opportunity to invest in other assets while the market is down? Yes!
Sadly, nearly 70% of all retirees have the majority of their net worth tied up in their home. With banks unable to loan funds because of the credit crunch, real-estate prices down substantially, how are they going to access their money to live on during retirement or emergencies? This next wave of home selling, by the baby boomers needing to raise cash in order to retire may deteriorate prices even further. Many retirees have to put their retirement plans on a permanent hiatus.
RETIREMENT PLANS:
What assets are not tied up in our homes, are in many cases inside of a 401(k) or an IRA retirement plan. This is not just for those who are retiring or are retired, but includes almost every working family in America. Nearly all retirement plans have exposure to the stock market. The DOW lost over 22% this week. In January 2008 the DOW was above 13,500 and as of Friday it was near 8400.
If you had a $100,000 retirement account and it drops 40% it is now worth $60,000. The market has to return not 40%, but 66% just to get back to your original $100,000. This can take years and may take decades. Warren Buffet has suggested that over the next 10 years the market will, at best, return 6-7%. That was before this financial disaster, so all bets are off now. But even using those numbers it would take 10-12 years to regain your original $100,000.
Those who have bought into the financial planning communities theory of “diversification” and “asset allocation” have now come to realize that those are just words to make us feel good about taking risk, but inactuality do very little to avoid risk to our portfolios.
TAXES:
It seems inevitable that tax rates must rise. There is no possible way for the government to meet its future obligations without a massive tax increase. Some estimates say that America owes 53 TRILLION dollars in future obligations with no money saved at all. Tax increase may be slow in coming, but they are coming. The alternative is unthinkable to every politician, which is to decrease spending (that’s a novel thought, spend less) and decrease benefits to social security and Medicare benefits. The path of least resistance is raise taxes and they may even add an additional tax to retirement plan distributions. The laws are in place all they have to do is declare an emergency. Are we there yet?
INTEREST RATES:
Interest rates have been artificially low for years. It is just a matter of time before China and other countries demand increased interest rates or sell the debt they own. For them to sell their debt could mean financial disaster for our country. In addition as credit becomes more difficult to get, the supply and demand forces will push interest rates upwards. The FED has been manipulating interest rates, but that cannot last, and interest rates will have to rise. Bond holders beware; this will have a negative impact on your underlying values and the longer your duration, the greater the impact.
SOLUTION:
The Banking Process should be moved to the center, as the foundation in which all other assets are built around. You cannot afford to wait until the market recovers; you HAVE to build your foundation as quickly as possible, get your private banking system capitalized, and use it for your personal and business needs. You must increase your wealth, and be in control of your financial destiny, and have access to cash in case of emergency or opportunity.
Our clients who have implemented this strategy are resting on a solid foundation despite the current financial crisis. They have access to cash without having to fill out an application and ask the corner bank for a loan. They do not have to sell their home as a distressed sell because they can’t make their payments. They also have cash to take advantage of some of the opportunities that may come their way in this crisis.
In addition they are continually depositing money into an account that, if handled properly, can legally shelter them from taxes. However, this takes time, so the sooner you capitalize your own banking system the more tax advantages you may have. This is HUGE and cannot be over emphasized.
If you are not involved in the banking process, it’s time to evaluate where your funds are now and the most advantageous way to capitalize your banking system. If you are not rethinking your retirement plans and/or your home mortgage, you should be!
This is the conversation you should have as soon as possible, if you haven’t already. There really is no time to waste. The “banking process” is not something that can be established overnight. You need to get started, so when funds are needed they will be there, and you and your family can be self-reliant for generations to come.
Dan Thompson
www.BecomingYourOwnBank.com
You may recognize this conversation…
“Financial Advisor”-“How much money do you have in savings and your other investments?”
You tell them how much…
“Financial Advisor”- “What return are you getting?”
You tell them what rate of return if any…
“Financial Advisor”- “Oh, I can get you __ %.”
Most financial advisors are fully focused on getting you a larger rate of return while simultaneously spending time and energy on reducing your standard of living to increase your savings. The naivety of most advisors on wealth and the economy can be devastating to your future. By realizing the causes and reasons for our economy’s downturn you will know how to face it. There’s a saying, “If you know what’s coming you’ll know what to do.”
The economy is gradually converting to a situation where more money is coming out than going in. This year 78 million baby boomers started to retire, and will be eligible for Medicare, social security, and other retirement benefits at the tune of 5-6 a MINUTE. This will cause a continual decline just as its opposite effect was had on our economy in Clinton years. To state briefly, your money will not be safe in an economy like ours today, and any risk could have devasting results.
The reality, however, is this; Real wealth is created by being in control, and understanding that risk is not necessary to creating a stable and plentiful financial future. Most people don’t like risk, and should be learning how to control their money, and keep it safe. By utilizing your own money and becoming your own banker, you will find safety, growth, and control. Understanding true principles of money will give you peace and comfort in an economy where many are struggling.
Visit our site BecomingYourOwnBank.com
Wealth Creation and Mortgages
September 19, 2008
Would you use the following investment:
You can determine the amount of contributions, and length of time to continue those contributions
You can pay more than the minimum contributions, but not less
If you pay less the financial institution will keep all of the previous contributions
The money is not liquid
The money is not safe from loss of principle
Each contribution results in less safety of principle
The money deposited receives a 0% return
Your income tax liability increases with every contribution
When fully funded the plan pays out no income
Traditional financial planning is like applying the brakes and the gas at the same time…not very effective. Most Americans plan for their future by postponing taxes while they are simultaneously getting rid of their tax deductions. When looked at this way it’s easy to see that additional payments to the home mortgage has really no positive results..
“Learning to manage the equity in your home wisely will allow you to utilize one of the few tax deductions that we Americans have left, our mortgage interest”
-Douglas Andrew
The best results will be seen while keeping the equity out of your house, while putting the extra money to work through vehicles that provide safety, liquidity, growth advantages, and tax advantages.
Creating True Wealth by Infinite Banking
September 9, 2008
Creating wealth is about changing the environment that your wealth works in. Its useless to seek out new investments to risk your money, when you have all the investments you will need right underneath you. If you pay interest, have debt, pay taxes, or pay cash then this is for you.
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Becoming your own banker is about financing what you currently finance through the bank or pay cash for. We will literally show you how to take your transferred wealth and recapture it. This will do better than any type of return you will ever get on the accumulated wealth. Stop risking your money, and change the environment. Make it grow safely and powerfully, while not loosing the thousands you are currently loosing.
Wealth Accumulation is about safety, growth, and understanding where you are currently losing money either unnecessarily or unknowingly, and bringing that back to the table.
Become Your Own Bank
August 19, 2008
We have some more additional info on our site now!
Check it out at www.becomingyourownbank.com
