By now we've already discussed six dazzling reasons why participating cash value life insurance should be at the foundation of your client's financial house: 1) You can get to the money in your "bank" whenever you want or need it, without waiting and no penalties or taxes, 2) The government, your employer, or any other outsiders have nothing to say about how you operate your "bank," and 3) Your "bank" is protected from creditors and lawsuits. Let's move on for more compelling reasons to put cash value life insurance to work for your clients
Reason No. 7
Your "bank" allows you to put all of the interest you would normally pay to credit card companies, banks and other credit grantors into your "bank," where it compounds for your benefit.
When you borrow money from a commercial lender to make a purchase and pay interest, you make two other entities richer; the seller of the product and the seller of the financing. When you use your "bank" to purchase the items you need and want you are able to recover not only the principal you would otherwise give away, but also the interest that you would contribute to a lender's balance sheet and earnings statement.
This is not a trivial issue. The typical American family pays up to 35 percent of its gross earnings as interest on top of what they pay in true taxes; not just income taxes to federal, state and local governments, but also Social Security and Medicare taxes along with taxes on gasoline, phone service, property, sales, etc. When you buy things with credit you frequently finance the taxes too -- a double whammy.
When you borrow from your participating cash-value life insurance policy -- your "bank" -- and repay what you borrow (including the built-in taxes), you also recover the interest in your "bank" that would otherwise end up in the coffers of some lender and the bonus of the CEO who figured out how to get your money for his Behemoth. The interest you save over your lifetime with this simple strategy can, almost all by itself, make you wealthy.
Here's an example. If you buy 10 automobiles, one every four years, and finance $26,000.00 each time through a local bank, you will spend almost $300,000.00 on cars. The bank that finances those autos will make almost double that amount off the money you pay them. If you were to finance those same 10 automobiles using your own "bank," you would put exactly the same amount of money into the hands of the auto company but -- and this is the interesting thing about interest -- you would recover every penny you spent, collect all of the interest you would otherwise have paid some commercial bank and would have almost $500,000.00 in your "bank." In other words, you would be the bank.
Reason No. 8
Your "bank" allows you to pre-pay the cost of future health and long term care so the money you need as you age is in your "bank" when you need it most.
One of the greatest challenges we face is being able to care for ourselves or to be able to afford to pay for the care we need as we age. A three-year stay in a nursing home (that's an average for a retired couple) costs almost $200,000.00 today. Receiving the same care at home is just as expensive. Add to that the medical care costs that are not covered by long term care or Medicare insurance (Fidelity Funds' annual estimate for a 65-year-old couple in 2007 was $207,000.00). That's more than $400,000.00 in unfunded medical and long term care costs for the typical retired couple.
This is a big problem for each of us and for society. If retired persons can't pay for their care then society will have to chip in. It is imperative to put money aside to pay for these costs. But, it is a daunting task in the conventional way of thinking.
It's not as scary if you have your own "bank." The same participating cash-value life insurance policies that allow you to build your wealth by borrowing and repaying yourself for the things you buy throughout your lifetime can also be used to pay for unreimbursed medical expenses and long term care when you are older. Remember, everything you buy and pay for by borrowing from your "bank" is going to be there for you when you are older. The more successful you are at building your "bank" in your early years, the more comfortable you'll be when you are older.
There is one other way to pay for post-retirement medical and long term care costs; Health Savings Accounts. These vehicles allow you to put money aside for medical expenses during your working years. If there is money left in these accounts when you retire, you can use it to pay for unreimbursed medical expenses as well as long term care expenses or insurance premiums. You can also use these funds to pay for long term care insurance during your working years.
As Tennessee Williams once said, "You can be young without money but you can't be old without it."
Reason No. 9
Your "bank" can fund an inflation-protected income that you do not have to work for and you can't outlive.
You hear a lot of talk about "passive income" in the financial press and from investment advisors. Passive income is income that you don't have to work for. It is generally considered to be derived from investments such as real estate, stocks, bonds and mutual funds.
But there's an unspoken problem that accompanies this thinking. This kind of passive income can be missing in action if you need it during a down market, when a real estate bubble bursts or if your situation demands cash and the only way to get it is by selling the asset you are relying on for passive income. In other words, it's risky and you can outlive it.
I recently had a call from an 81-year-old gentleman seeking advice. He was nearly destitute. His medical expenses had eroded his assets beyond his expectations. All he had was his Social Security check and a small money market account to help him pay his bills. The assets he relied on for his passive income were no more. He had followed his own advice. He found it wanting in wisdom. That gentleman was a successful financial advisor for most of his adult career.
The money you hold in a participating cash-value life insurance contract -- your "bank" -- can be converted into income that you do not have to work for, that adjusts with inflation and that you cannot outlive. In addition, much of the income you derive when you take it from your "bank" can be free of income taxation.
P.S. In fact, any asset that has market value can be converted this way. Many advisors, however, are not trained to accomplish this or work for Behemoths who do not advocate this strategy and the cash-value life insurance and annuity products that support it.
Stay tuned for Part 4 of this white-paper series for more dazzling reasons why you should place participating cash value life insurance at the foundation of your client's financial house.
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