Today Clint Coons, Esq., speaks with Christian Allen and Rod Zabriskie from Money Insights about the strategic use of life insurance policies for real estate investments. Learn how to maximize your financial resources by putting money to work through optimized contributions and leveraging the tax-free advantages of life insurance. Explore the flexibility of funding ranges tailored to your goals and discover how quickly you can access funds. Understand the process of taking loans from your policy to invest and the impact of simple versus compounding interest.
Christian Allen is the founder and CEO of Money Insights. He launched Money Insights in 2014 after working in the financial services industry for over a decade. Christian’s mission is to help high-income earners accelerate their wealth building, optimize their investing, and find new and innovative ways to go from high income to high net worth! He is passionate about entrepreneurship and helping others. He enjoys playing pickleball, watching sports, and spending time with his wife and children.
Rod Zabriskie is the President of Money Insights working directly with clients and the team to create an enjoyable environment for all. He has worked in financial services since 2009, after a decade of working in small businesses for others. He holds an MBA, with an emphasis in entrepreneurship, as well as an undergraduate degree in Marketing Communications. Rod is married to Jodi, and they have 7 amazing children.
Highlights/Topics:
- Don’t just save money to invest, put it to work
- Utilizing the tax code, life insurance as a vehicle
- Optimizing contributions to your policy
- Flexibility – creating funding ranges for a policy
- How soon can someone access these funds?
- How to take out a loan from your insurance policy to invest
- Simple v Compounding interest in this scenario
- Examples of how this concept can work and ‘what if’s’
- Utilize up to 95% of your policy amount – think of it as a line of credit!
- Money Insights can easily help you structure these setups
- Tax-free benefits
- Phase two of the investment optimizer – creating tax free income
- What happens if you actually DIE?
- Case study – wild client story
- Contact Money Insights to get started
Resources:
Schedule Your FREE Consultation
Full Episode Transcript:
Clint: I want to get right into this. This is such an important topic because a lot of people out there are looking for higher returns now on their real estate investing. As we’ve seen prices go up, interest rates have gone up, it’s really cut into the returns. This strategy, as I stated earlier, I’ve been using for my own investing and I really want the audience to understand the power of using money twice when it comes to investing in real estate. Why don’t you take it from there and let them know what that strategy is and how it can benefit them?
Christian: We’re really excited to talk about this concept because it’s one that just about everybody can utilize. If you’re a real estate investor, especially, you can utilize the strategy that we’re going to talk about. Really it’s all about investment optimization.
Most people, when they’re investing money, they’re trying to figure out what’s the best place to hold money. This is especially true in the alternative asset space. When you think about it, Clint, if I’m in the stock market, I can do something really simple. I can put $50 a month into my account, but inside the alternative space, that becomes a little bit more difficult. It’s becoming more available, but still most people have to save $25,000 or $50,000.Â
The first thing that we want to do is we want to solve that issue and make sure that as I’m saving money to invest, I’m actually doing something with it. We’re going to get into in a minute how to actually use money twice. But right here, we just want our money to be in a place where it’s going to grow, it produces a return, it’s going to be safe, it’s going to be accessible. All of those core elements have to be there in order to make what we call a good opportunity fund or the place I’m taking for investment opportunities.
That’s the starting point at the investment when we’re trying to focus on investment optimization. We call the strategy, the investment optimizer. Really simple. Again, it’s because we’re laser-focused on helping people take the return that they’re getting and improve it just by running their money through a life insurance contract before they invest. That’s going to sound a little bit crazy, but that’s how we do it.
Clint: For a lot of people, once they hear life insurance, they’re probably going to go, alright, I’m out.Â
Christian: Turn it off.
Clint: If you sell me insurance, right? You just pop my birthday balloons. But the fact of the matter is it’s more to it than that. We use life insurance, but we’re taking advantage of the tax code. That’s what people should focus on is the fact that this is a tax planning product and an investment product all bundled up into one, isn’t it?Â
Rod: Yeah. What we’re doing is we’re using life insurance because of those things. There are advantages that we gain by using life insurance that we can’t get anywhere else. Tax is one of those. Specifically, let’s break that down. When we put money into a life insurance policy, it’s after-tax dollars going in. Especially the way that we design these, a good portion of that money that I’m putting into that account is going into what’s called the cash value.
In other words, it’s not going to cost. It’s not going away because of the insurance part of it. I’m building literally a savings account inside of my account for this life insurance policy. That money grows based on a guaranteed interest rate and a dividend.Â
We can get a little more into how it grows part, but as it grows, it’s growing what they call tax deferred. In other words, I don’t get a 1099 at the end of each year based on the growth inside of that account. That’s number one. Number two, I have access to and can use that on a tax free basis. Then number three, when I pass away late, way down the line and I’m passing away, the death benefit pays out, that also pays out income tax free.
If you think of it from a tax standpoint, it acts an awful lot like a Roth, but I don’t have the same kinds of restrictions and rules around what the Roth does. It’s totally open-ended. It’s something I can set up for myself and decide how much money I’m going to put in, how I use that money, and I get those tax benefits. That’s definitely a huge part of it.Â
Then in addition to that, we get the benefits Christian talked about earlier that we want in our opportunity fund, the safety, the liquidity, some growth that’s happening with it. Then in addition to that, now we get back to what you talked about earlier, where there are some unique ways that this works inside of a life insurance policy to where we can create value in multiple places at the same time.
Clint: Here’s a great example of this. Our daughter this year, she was preparing her taxes and she had money invested in the savings account. She was excited last year. She’s making 5% interest on it and that sounds great. But when it came time to prepare her tax return, she was sitting there in our kitchen saying, dad, I need help. It is the system that she was using to prepare a tax. She goes, it’s wrong. I said, well, why do you say it’s wrong? Because it keeps telling me I owe money to the IRS. I shouldn’t owe any money. I said, but you made money.
That’s the thing. She made money, but then the government took a portion of that money away and it just so happens that she was looking to go out and buy another piece of real estate. She said hey, this hurts. But you’ve got that problem solved.Â
Christian: It really is. It’s about maximizing the income tax code. That’s a big component when it comes to maximizing investment. Just doing that simple element, changing the place that I hold my money before I invest and making sure that I do it in a tax-favorable place will make a big difference. It’s a huge deal. Great point.Â
Clint: The other thing about this as well that I find attractive before we get into using the money twice is that when we think of putting our money somewhere, I talk a lot about using Wyoming limited liability companies because they offer asset protection.
Now, people are always wondering, are there other options? If you put your money in Wells Fargo and you kept it in your name in a savings account, you got sued tomorrow, they could take that cash from you. But with this type of optimization policy, it doesn’t work that way. Am I correct?Â
Rod: Absolutely. What happens is as we know, the IRS code is built around incentives. Whatever the government wants us to do, they’ll incentivize us to do. In this case, we talked about the tax benefits, but now on the asset protection side, they’re saying there’s value to having money in a life insurance policy, there’s value to having life insurance.Â
When you’re sued, the kinds of things that are protected are homes, retirement savings, and other things like that. Then obviously you build structure around it. You can do a lot more with it, but they’ve put life insurance cash value in that category of what needs to be protected. When you get into the specific state rules there, the actual rules can vary. But the point is that the asset protection, in other words, money you have in that life insurance policy is set aside and protected even if you’re sued.
Clint: That’s protected from your creditor. What I’m hearing here and I hope everyone’s catching on to this is what we’re saying is that number one, the money that you invest into the policy grows, tax defers so you’re not paying tax on it, on that growth, and you have asset protection.Â
Now, Christian, you called it a Roth IRA. It’s similar to a Roth IRA. But the problem with the Roth IRA is that I have to use that money inside of the Roth. If I wanted to go out and invest in real estate and I had a Roth IRA set up, great, I’ve got some asset protection depending on my state where I set this IRA up. I also have the tax deferred or tax-free growth, but I have to invest in the Roth. How is this concept different from an investment standpoint?Â
Christian: That’s a really great point and an important difference because of a couple of things. First off, one of the main differences, aside from the fact that I don’t have to literally be inside the IRA, which by the way you know this as well as anybody, that adds another layer of complexity in the way that we invest. I can’t tell you how many people this was a huge trend and it still exists. It still has this place. But the big trend was putting money inside of self directed.Â
People got really excited about that. They started to do it and then they realized that it does add a layer of complexity. When it makes sense, it’s really great, but it doesn’t always make sense. What we’re talking about here is getting some of those benefits and potentially even more benefits without having those restrictions of having to invest inside of it.Â
In addition to that, I don’t have any limitations on two really important things. One, how much money I can put into it on an annual basis. If I’m putting money into a Roth IRA, I might be putting in $6000 or $8000 a year. Well, that may or may not get me to my investment goals. When we’re talking about using the investment optimizer through an optimized cash value life insurance policy, now I have the ability to put in as much as I’m going to invest.
What we’ll often do is say, okay, how much money are you intending to invest in real estate this year? Then that’s how we determine how much money would go into the policy. Now instead of investing through their bank account, they’re just getting a return, getting all the benefits that you talked about that we’ve hit on and now they’re investing. They don’t have to worry about it.Â
One other really important thing. If you’re a high income earner, you might get phased out of a Roth IRA entirely. If that’s you, that becomes another challenge. We don’t have to worry about that. It ends up being a little bit like a Roth IRA on steroids where we don’t have all of those restrictions. Super important.Â
Clint: Those restrictions are going to be that if you want to work on the property, do any rehab work, that’s automatically a prohibited transaction. All of those things that can derail your investing, your tax-free, tax-deferred retirement plan that happened with real estate inside of self-directed IRAs, that doesn’t apply with what we’re talking about here today. Let’s get into how the strategy actually works.Â
Let’s say that I’m an individual investor and right now I have (say) $70,000 sitting in my savings account, and I’ve allocated those funds that I know I want to put into real estate. I’m looking at properties. How would you suggest that a real estate investor then utilize those funds to get a higher return on their investing and follow this strategy to get the benefits that we’ve been alluding to?
Rod: Basically what we would do is we would begin by setting up the policy. I’m just going to really be clear here, there is a right way to set these up and there are many wrong ways. There’s a specific way to create the benefits that we’ve talked about. Again, we’re using whole life insurance policies. We optimize them to grow the cash value. We want as much of our money going into that cash component and as little as possible on the cost side. We’ll create a policy, let’s say it’s at 70,000.
Initially, what happens is we’re creating what’s called a funding range. When someone says, oh, but if I set up a policy, and I’m putting the $70,000 and that means I’m committing to putting $70,000 a year into this policy. That’s not the case at all. In this example, what would happen is we’d create a funding range where about maybe $15,000 would be the minimum amount each year you’d put in and $70,000 is the max creating what we call it a funding range. I have a lot of flexibility on how much I put in.Â
In that first year, I can put the $70,000 in. In the subsequent years, if I have $70,000 again, continue putting $70,000 in, but if not, no worries. I put in anywhere between that range. There’s a lot of flexibility first of all.Â
Secondly, once I put that money in, then the next concern is how long do I have to wait before I can start using it? Do I have to leave it sitting there for years before I can do it? The answer is no. You can pretty much immediately start accessing. It’s about a month after starting the policy, you can start accessing those funds to go out and invest with it.Â
One thing that I’ll hit on is that with these insurance policies, the costs that we do have are somewhat front-end loaded. In that first year, you put the $70,000 in, you’re going to be able to access about 70%–75% of that to use for investing immediately. But then in subsequent years, as I keep putting money into it, the costs are much lower. So relative to what I’m putting in, I’m going to have a lot more access to a lot more of it.
In the long run, essentially what I’m doing is I’m creating this underlying account that’s generating roughly a 5% plus tax-free return. I’m loaning against that to go out and invest and create returns in the real estate and wherever else I’m investing.
Christian: Can I jump in on the 5% return because here’s the thing you mentioned Clint a little while ago, your daughter at the bank getting 5%. Life insurance, specifically whole life contracts are designed to outperform general interest rates. However, there’s a little bit of a lag between them because they’re massive companies that have been around forever. They generally lag just a little bit.Â
I was actually at a conference last week with one of the companies that we use frequently, and the CEO told us just point blank that they were increasing their dividend next year. What we’ll find from an interest rate standpoint, the reason Rod said generates about a 5% return is because over the last decade where interest rates have been in the tank, that’s about where we’ve been.
Having said that, as interest rates are moving up, as dividend rates move up, the overall return that I’ll get will actually go up. If you were to look over the last (say) 25–30 years, it would look something more like 7% or 8% inside of your policy. I just want to clarify that, especially because of the interest rate environment that we’re in today, I got my fortune telling ball out, that’s not the right word.Â
Rod: Crystal ball.
Christian: If I get my crystal ball out I feel really confident that interest rates are going to go up, so that’s like a minimum you can go take to the bank. I would suspect that that will look quite a bit better than that over the coming years. Sorry, Rod. Just wanted to make sure that I added that context.Â
Rod: Yeah, no, that’s great. But the beauty of it is that it’s a very consistent predictable return. That’s why we like it in this context. In other words, if we were putting it somewhere where we were taking on a bunch of risk with the underlying account, then that might change the way that I invest.
But because instead it’s something that’s very predictable that creates just a very consistent return, whether I loan against it and go out and invest or not, that’s going to happen either way. I might as well. That’s what the funds were set aside for in your example, the $70,000. I was planning to use it for real estate, so I’m going to continue to invest in the exact same way as I would have anyway.
Clint: Okay, let’s assume that I have $70,000 in my account and I’m receiving 7% a year. So that’s $4900 a year that’s getting added to the value of this optimized savings account to use another term. That money’s sitting in there.Â
Now, I need to use it to go out and invest because it’s originally why I put the money aside is I want to invest in real estates, but if I had a savings account and I took that money out of my savings account and I withdrew $70,000, I’m not going to make any money the following year because there’s no money left.Â
How does it work? You’ve mentioned before you’re borrowing this money out. Can you explain what happens to that $70,000 in my example, that’s making a 7% return when it gets used on the real estate side.
Rod:. Essentially what happens is I have that money in my account. And because it’s there, what the insurance company does is they make it available in a loan. In other words, they say hey, we have reserves in our general account and we’re making that available to you to take as a loan. There’s no draw out process. There’s no underwriting to getting the loan. Just the fact that my money is sitting there by itself qualifies me for this loan.Â
I say, okay, great. I’m ready to go and do this investment. I have $70,000 sitting in my account. I get access to up to 95% of that as a loan. Let’s just take a round number, say it’s $65,000 that I take and that’s the money that I’m going to go out and use for my investment.Â
Maybe it’s a down payment on a property. I financed the rest. I create monthly cash flow and rental income or whatever, I flow that back. But the point is, all of that flow is happening through this loan. In other words, the other $70,000 that was is in my account, that’s collateralizing that loan, stays there and continues to grow on a compounding basis.Â
When we talked earlier about trading value in multiple places at the same time, that’s actually how that’s happening. My money stays there. It keeps growing. I take the loaned money, use that to go create the returns and cash flow and other cool things in my investments.Â
Then what happens is I’ll flow that back into the plan, technically speaking, paying down the loan. The way I think of it strategically is that I’m replenishing the opportunity funds so I can go back out and do it again.
Clint: Okay, I heard some multi-syllable words that you use. For people in the industry like yourselves, it makes sense. You said two things. You said one was to collateralize the loan and there’s no underwriting requirements.Â
What I’m understanding then and what we’re hearing is if I wanted to take a loan out, I don’t have to show that I have a 750 credit score or anything like that. I could have gone through bankruptcy five years ago and that’s not going to impact my ability to get after those funds, right?
Rod: That’s exactly right.Â
Clint: Okay, then when I’m borrowing that money, am I drawing down my account? If I took out 95% of that $70,000, I’d have pulled out $65,000, so now I only have $5000 left that’s investing in making a 7% return. Where’s that money coming from?Â
Christian: What makes the concept so unique is that it’s literally two buckets of money that we’re working with. As Rod mentioned, we’re literally pulling from this massive general account of the insurance company. While our money continues to stay inside the account. What’s happening is my money literally stays in there and continues to earn the interest and dividend while simultaneously. I’m using the loan.
Now the insurance company is going to charge me an interest rate, but we’re going to use a concept basically where we’re maximizing compound interest while taking advantage of simple interest at the same time.Â
Basically, what we’re going to do is we’re going to make sure our money’s growing as fast as it possibly can through compound interest and then when we pay the loan, we’re going to use simple interest just by making sure that we don’t ever let it compound and that’s really simple. We pay the interest once a year. That takes care of any compounding elements. While on the other side, we’re just going to continue to grow our money.Â
Maybe Rod, it would be helpful if you gave an example of the numbers behind this simple versus compound so that people can see the power of it, because a lot of times, we hear this, okay, that sounds interesting, but what does it actually mean? Listen to what Rod’s going to tell you. It’s a big, big deal.Â
Clint: Oh, absolutely. Now I’m fascinated. I want to hear how this works.Â
Rod: Let’s just use an example. Let’s just say, and I’m going to use $100,000 just to use a much more round number. Let’s say I took a $100,000 loan. I use that to go out and invest in something. I created some sort of return coming back and I’m flowing that back. What happens is I ended up paying that loan down over the course of 20 years to get it completely paid off.Â
In that type of a situation, let’s say, assume I’m paying 5% interest on the loan. In year one, I pay $5000, but I paid a portion of the principal down so that when year two comes around, even though it’s still 5%, my new balance was only $97,000 so I pay less interest in year two.
I’m paying simple interest on a decreasing value so that over the course of that 20 years, I will have paid a total of about $60,000 in interest by the end. I took a $100,000 loan, took $160,000 to pay it all off so that additional $60,000 is in interest.
At the same time, I have $100,000 sitting in my account over on the side, acting as collateral for the loan, but otherwise just staying there and continuing to grow. Again, let’s just assume the exact same 5% interest rate.Â
You would think 5% paid and 5% earned washes it and there’s no difference. In this case, the $100,000 stays there, keeps growing, and it’s growing on a compound basis.Â
In year one, I earned 5%, that’s $5000. But then in year two, I now have a $105,000 balance. I earned $5,250 in interest, et cetera, each year growing, so I’m earning more and more.Â
When you look at the end of the 20 years, I will have earned $165,000 in interest total. So remember $60,000, I paid in interest on 5%,  $165,000 I earned on 5% compounding. That’s the difference that you’re able to create in just that paying simple and earning compound.Â
Clint: If what I’m understanding is I keep making money in that $100,000, so that interest that I keep receiving or the payment from the company is based upon that increasing value. Whereas my loan was just at a flat value and it never goes up. It just stays there and I keep paying it down.Â
Then let’s assume using that $100,000 example. If I did that exact same strategy, after you pay the loan, who’s making those loan payments? Do I have to generate that for my rental income? How am I covering that to pay the insurance company?Â
Rod: Whatever you invest in and that creates some sort of return coming back to you, that’s how you’ll decide how you do that. That’s actually one of the really cool things about this. The insurance company, when they give you that loan, they’re not dictating back to you hey, here’s your payment schedule. You have to meet these payments or else bad things happen. It’s completely up to you. The reason is because of what we talked about earlier. The money that is used as collateral for that loan is sitting in that account with that company.Â
They loan you that money and they also know what’s going to happen in terms of growing the cash value on what’s sitting in your account. That’s why they give us complete freedom to decide how we’re going to pay that back.Â
Again, the thing that makes the most sense to me, if I put it in a rental property, I’m getting monthly payments on that, whatever my net profit is on that monthly cash flow, I’ll just use that and pay that down towards the loan.Â
If it’s a quarterly or once-a-year payment, that’s okay. Like Christian said, even if it’s just a once a year payment, I still keep the interest simple. In other words, my interest only comes due once a year on the loan. As long as I’m keeping up with even a once a year payment, I don’t have any compounding happening on that loan side.Â
Clint: But let’s assume that I didn’t make the payment because I’ve been taking those funds and using it to pay for my child’s college education. What happens inside of the account? Because if that interest comes due and let’s say that it’s $5000 that’s owed, how does that get paid if I’m not paying it?Â
Rod: Think of it like a line of credit. Because of the cash value’s there and growing, if at the end of the year that happens, the $5000 is due, I don’t have the money to pay it. I just don’t pay for it. What happens is that they just get paid by the loan. Another term, they call that being capped, the interest gets capitalized onto the loan.
In that case, my $100,000 balance turns into $105,000 because the loan is what paid the interest on that. In that case, then I will experience some compounding. A lot of times it’s just a timing thing. If I’ve invested in a real estate syndication, it’s going to pay me out, say an annual distribution or something, and the timing doesn’t happen to align with the timing of when that interest is due at whatever arbitrary date my anniversary was on.Â
I’ve had this personally in my own situation. My anniversary date was in September. The distribution was paid out in November so I ended up making the payment in November, but again, bad things didn’t happen. They didn’t come looking for the money and putting lean on my home or anything else like that. It’s self contained. It all takes care of itself, even on that type of mismatched timing.
Christian: The other thing that’s important to remember is that you’re still earning a return. Worst case would be a wash loan situation where I basically have gotten in my account what I’ve earned. It’s not like my actual cash value will decrease. It’s just that I won’t have gotten the compounding effect that I was potentially trying to get.Â
Again, it’s just aligning those things, but it’s not going to hurt somebody or make a huge difference if every few years or whatever, it ends letting a year of interest compound. It’s just going to have a minimal effect because again, remember two accounts, but one of them, you’re paying interest on, the other one you’re getting interest on, so even when the account that you’re having to pay interest on ends up actually happening, I’m still receiving a return. Oftentimes that’s going to be the same or better than what I’m getting on the other side of the ledger.Â
Clint: And because it’s non taxable in that account, you’re getting the full value of that return. Whereas as we talked about with my daughter, she didn’t get the full value of the return because she had to pay taxes on that. That really eases that bite.Â
When we talked about getting a higher return, you just hit on something there, Christian, that I’ve seen before, even with my own policy, is that the return that I tend to receive is higher than the interest I’m paying.Â
If I have a real estate investment and I look at my cash on cash return, and I’m calculating that out, and I’m saying, all right, well, my cash on cash return is going to be 6.5% on this deal. What I should also factor in is the return on my money that’s invested as well, because if that is having a net return of (say) 1.5%–2% because I’m not paying anything. It’s just when you average it out, my return versus my interest, I’m still getting a 1.5%–2 % that just increases my cash-on-cash return on my overall investment portfolio.Â
Christian: Absolutely. That’s 100% true. I’m trying to think of what makes sense to expand on because you absolutely nailed it. That’s exactly what’s happening.Â
Some of this depends on what type of policy we’re using. We probably don’t need to get into the details of direct recognition and non-direct recognition. But just know that the policies have different elements that can be more or less advantageous based on what’s happening in the market.
We tend to lean toward using direct recognition policies because we know exactly what we’re going to get. We never have to worry about being upside down on our interest rates because those two things are completely aligned.Â
But to your point, if I was in a non direct recognition situation, then there is a possibility that I could be on either end of that just depending on what’s going on in the marketplace if that makes sense.Â
Clint: Got it. Is there any limit to the number of loans I can take out of my policy if I have the cash?Â
Rod: It’s all about how much you have in the cash value. You can get up to about 95% of that. We usually see that happening in increments. In other words, if I have $100,000 available but I want to spread that out across two or three different syndications, I’ll take a loan of $50,000 and put that in one, I’ll go back and I’ll tap into it and maybe another $25,000 into a different one. Again, think of it like a line of credit. It all acts as a single loan balance. As I access it, it just incrementally grows that way.
Christian: We’ll help people establish a payment schedule if that’s what they’re looking for. We’ll certainly help people actually do the loans.Â
One of my huge pet peeves is when we see people who are using similar concepts and they just have to go try to go directly to the insurance company and make phone calls, that’s a nightmare. We will literally take care of all of this.Â
It is as simple as hey, guys, I need $50,000 for my policy. We’ll take care of it from there. I just want to make sure that people don’t feel like, gosh, it’s just such a pain to deal with large insurance companies that I want to have to mess with that? You don’t have to.Â
Clint: Well, what happens if five years from now or eight years from now, I’m done. I just like, alright, I don’t want to do this anymore. Is there any penalty if I quit putting money into the policy or is there flexibility like that?Â
Rod: There is a lot of flexibility.Â
Christian: There’s a huge amount of flexibility. It’s one of the reasons we really like it. Two things I’ll hit on. Number one is I can just stop at any time and I’ve got the cash value that’s available to me. Now, once people understand the strategy, there’s little chance that they’ll say, I just want to pull it out of my policy because once I’ve paid basically three years worth of the full premium, I’m totally funded.
Think of it this way, Clint. When Rod talked about that idea of a funding range, basically where we could put in up to $70,000 and as low as $15,000, what I’m basically doing when I put $70,000 is I’m paying 4 years of premium upfront right then and there. Once I’ve done that for approximately 12 years, that’s our rule of thumb, then the policy is going to be completely paid for.Â
I could take the money out of the policy. If I just surrendered it, then I would have to pay taxes on the gains that were there. But if I left it there, I’m just going to be able to utilize it completely tax-free. I could even empty the account and just bring it to what we call a reduced paid-up.Â
At that point, you’ve gotten all the same benefits, except it’s been tax free. Now, you could totally do it. It wouldn’t be an issue to walk away. But again, once people understand it, they just probably won’t. It’s pretty rare for us to have someone walk away from it.Â
Clint: You use one of those terms again.
Christian: Help me, Clint.Â
Clint: What you’re saying is this, let’s say I go in and I want $500,000 of life insurance. Then I decide I don’t want $500,000 anymore. I only want $20,000. Is that what you’re saying? Because the cost of $20,000, that’s like one of those bottles of wine over my shoulder on an annual basis.Â
Christian: That’s it. You nailed it and thanks for calling me out on that. Basically what’s happening is I would just take the cash out and utilize it. Then the insurance company could turn it into this reduced paid-up, which just means that I have a small little death benefit that’s automatically there.Â
One other thing that I want to hit on on this question because I think this is really important, it’s what we call phase two of the investment optimizer. That is where we start to use the money for other things.Â
Typically what we’ll see is people who are really active investing, they’re using the money from the policy, they flow it in and out of it. Then over time, when they get to a phase where they may not be as active anymore, they might decide, okay, I still want to utilize this money, but I might want to do it in a different way.
What’s really unique about using life insurance is it’s a powerful tool for creating tax free income. One of the things that we’ll do is we’ll oftentimes move into phase two and help people move from that active investing to creating a tax-free income strategy that again basically bolsters their entire financial world, because when you bring out that income tax-free, it has a positive impact on income that’s coming from other places.Â
Phase two ends up being a big part of what the process is about, and that’s really the way that we exit the strategy. We just use the money pretty simple.Â
Clint: Let’s say that I’ve put in a total of $250,000. I have $250,000 in. I have a $150,000 loan taken out, and I’m up on the roof putting up Christmas lights. I fall off and I kill myself. What happened?Â
Christian: I’m glad that you bring up this point, Clint, because so often we get laser-focused on the ability to improve investment returns that we sometimes neglect the actual death benefit.Â
Here’s the deal. If something like that happens, one of the nice things here is it’s self-fulfilling. Nobody likes to talk about death, but the reality is when I put up my Christmas lights, I die. Now I have a death benefit for my family. That’s usually pretty significant.
You think about it. Our average client puts anywhere between $50,000–$100,000 a year into their policy and that’s going even though we minimize the costs and minimize the death benefit, that’s still creating a relatively significant death benefit. Now we have this full cycle.
Can I just tell you a really wild quick story. We had a client recently who was on vacation in a different state and actually got into an altercation and was killed. Just a wild situation. Really sad, heartbreaking for the family. He was using the strategy. One of the lifelines is that that strategy meant that she had another, I think $6 or $7 million, maybe even more than that, to his wife and family, so that they could continue to live and live the lifestyle that they had been living.
I always tell people, the last thing you want is to have someone close to you or have someone in your family die and not have any money. That’s the only thing worse than just the event itself happening. I’m really glad that you brought up the death benefit.Â
Clint: Well, I’m just curious because my wife refuses to allow me to hire a professional to come out and put the lights up. She tells me I have to go up every year. Now I understand why.Â
Christian: I don’t know if I believe that. I’m trying to picture you up on the roof. I’m not sure.Â
Clint: I’m like a cat. I’ll tell you that.
Christian: I believe it.
Clint: Well guys, this has been awesome. You’ve got retirement, you’ve got tax-free growth, you’ve got asset protection. Is there anything else before we close up here that you think that the people who are watching this right now really need to understand about using this and why they should set one up?Â
Christian: One really critical point here. If you leave with nothing else, just leave with this. You’re doing the exact same thing that you were doing before, but you’re literally producing a higher return.Â
I’m not saying like, mythically, you literally get more money doing the exact same thing that you’re doing with a minor tweak. You’re flowing it through the policy instead of through the bank and now it’s opening up significantly greater returns, especially over time. If you take nothing else, take that.Â
Rod: Can I just throw some numbers behind that? Because I think a lot of the things we’ve talked about, we talked about the flow and the way it works and setting up the policy and the funding range and all these things. I just want to give a quick example where there’s an ATM fund that we invest in. We see a lot of our clients invest in.Â
What we did is we just ran the numbers and we said, okay, what does it look like if I invest in that using my savings account? I’ve just built it up there. That’s where my opportunity fund is. I take that money. I invested. I create a return. The performa return on that is about a 16.5% return over 7 years. Not bad.Â
When you instead use the investment optimizer, you’re flowing the money through the investment optimizer. You turn that into a 20.8% return.
Clint: That’s huge.
Rod: That doesn’t even include some of the additional tax advantages that you get because the growth in the policy is tax-free. Just think about that. We invest in the same things, just get a better return.Â
Clint: Absolutely. Well, I know you gave us some additional information. I’m going to put that in the show notes. Anybody who’s been watching this right now and you want to learn more about how this strategy actually works, they’ve given us some great information videos that you can go and you can watch on. Just click on the link below and you’ll find out all you need to know about how to put this into effect for yourselves.Â
Guys, thanks for coming on with the air. Truly appreciate it. It was eye-opening and I know people got a lot of information out of our conversation today.
