How can you get the best (not just an ok) whole life policy for cash accumulation purposes?
You have to treat your life insurance policy differently, and you will need the right agent to do so. There are hundreds of agents that profess to know how to do it, but they have no idea how to structure a policy the BEST way possible. We are trying to mimic what banks, big corporations and millionaires do on a smaller scale. Where do you think banks deposit their money so it will be safe/secured? In their own checking/savings account? In another bank's checking/savings account? There is no way! They deposit A LOT of their money into these types of life insurance policies. And do you think banks would buy a "normal" whole life insurance policy? Or do you think maybe they treat and structure their whole life policies differently? They preach to buy term and invest (with them) the difference, but it seems like they do things differently. And if you continue reading, I will prove this point to you.
FIRST YEAR: Instead of having ZERO cash value with a normal whole life insurance policy, this person will have $31,246! So what happened with the other $8,754? The life insurance company is taking a big risk – if that person dies, they need to pay $960k in Death Benefit (permanent – not term). And of course, some of the $8,754 will be the commission that the agent will make. That is WAY different from having ZERO cash value, and the agent making $30,000+ for commission.
SECOND YEAR: The cash value will grow to $67,440 – versus zero cash value with a normal whole life insurance policy. This year, the policy will just use $3,806 to keep the death benefit of $960k.
THIRD YEAR: The cash value will grow to $110,291. How much of the premium went to the cash value now? Practically all of it! Compare that versus a normal life insurance policy where you will still have zero cash value in the third year.
FOURTH YEAR: The cash value will grow to $156,262. And how much was the client total premium at this point? $160k. This person – in just 4.5 years – recaptured all premiums paid, but she still has a death benefit of $960k. We could say that the death benefit didn’t cost her anything at this point.
FIFTH YEAR: The cash value will grow to $205,337 (more than the Cum. Premium Outlay). So what is the rate of return this person is getting? About 6.3% tax-free!! The equivalent would be to find a savings account that will pay 8.7% (with a 28% tax bracket) – with no risk, completely secure, not tied to the stock market, credit protected and completely liquid. Oh, and the client will get a death benefit on the side as a bonus.
Now, each client is different, so the results could be more or less favorable. In this particular example, the client is still young (so the death benefit is still cheap), and she is paying a decent premium of $40,000. If a client is older and/or paying a much lower premium, then the “break even” point could be 5-8 years. On average, my clients break even in just 5 years.
In this example, I am using the current dividend scale for 2016. The company can, and will, change dividends every year depending on many factors, but this mostly depends on their investment results. Mutual life insurance companies DO NOT depend on the stock market, but invest in things like mortgages (not sub-prime), treasury bonds, corporate bonds, joint ventures, etc. Right now, interest rates are very low, so the dividends that they are paying are also low. For example, in the 80’s life insurance companies were paying almost double than what they are paying right now. It is my personal opinion that interest rates will go up in the next few years, so mutual life insurance companies will be able to pay a better dividend, and the results will be more favorable than what I am illustrating. So for these illustrations, I used a very low dividend scale. And finally, these companies have paid dividends for more than 100 years without missing one year - even through the Great Depression. They have stood strong through some of the most difficult times in history, which is the reason why this strategy has been used by wealthy Americans, big banks and large corporations for centuries.
While not everyone is in the right situation to take advantage of this strategy, I truly believe it is the best place to build a strong financial foundation. It is unparalleled in the benefits that it offers, and it gives you complete and total control.
I personally found sincere satisfaction in putting these strategies into practice for me and my family.
Thank you for taking the time to read this blog. I hope this information will be as beneficial for you as it has been to me.
If you think this may be something beneficial for you and your family, feel free to reach us at firstname.lastname@example.org or call us at (855) 702-7702.
God bless you!
Edgar I. Arceo
The Hesed Financial Group
2002 Timberloch Pl, Suite #202
The Woodlands, TX 77380
*Based on 2018 dividends and costs.
Quick note: You may often come across financial statements in which the numbers are written in the thousands. A company will denote the the numbers are in the thousands on the top of each financial statement. Companies do this to make the statements more readable. It eliminates the zeros at the end of numbers, so the numbers appear smaller. For example, $5,000,000 becomes $5,000 when written in thousands.
Is it as mysterious as many people and companies would like you to believe? It is not, but it does require an explanation, and we will try to be as concise and straightforward as possible so that you can get a good general idea of this strategy in 10-15 minutes. And if you have a more specific question, you can always contact us, and we will try our best to answer any questions you may have.
A "770 account" goes by different names like the "INFINITE BANKING, BABYLONIAN CODE, SECRET ACCOUNT, INVISIBLE ACCOUNT, 702j ACCOUNT, 501(k) Plan, etc." So don't let the names confuse you. A lot of those names (including the "770 account") were named for selling/marketing purposes.
So the first thing I want to show you is that banks use this modified life insurance a lot more than you would think, but don’t take my word for it – go to fdic.gov, and check their balance sheet. I am including 2 balance sheets from the biggest banks in America: Bank of America and Wells Fargo.
Check how much they have in cash value life insurance! They have more in life insurance than real estate and stocks combined!
Just like a "401K" was named after the 401k section of a chapter in the IRS code, the 770 account was named after the Tax Code number that discusses Life Insurance – section 7702. So why not just call it a life insurance policy? The reason is because this is not the life insurance most people buy or the whole life insurance many financial advisors warn us about. This is a strategy that uses a Life Insurance Policy as a chassis to get the benefits we are looking for, including the tax treatment. So this is a cash accumulation strategy that, if it is used correctly, can provide the following benefits:
a) Competitive rate of return, and real compound interest (not like mutual funds etc.)
b) Tax-free accumulation (if done correctly – below the MEC line)
c) Credit protected in most states
d) Not tied to the stock market. It will keep growing regardless of the stock market.
e) Strong guarantees (safety and security)
f) Leverage - it can be used to finance asset/business purchases
g) Chronic/Terminal Illness benefits
Do you think they know something we don’t know? If you go with a Bank of America or Wells Fargo banker – what do you think they would recommend? If you are looking for something secure with no risk and liquidity, I am sure they will tell you to put your money in their savings account (paying 0.05%) or their 3 year CD paying 1.2% (with penalties if you touch your money before the term). Or if you want something more “extravagant,” they may recommend a mutual fund and buying some stocks. But the million dollar question is: Are they following their own advice? Or do they practice what they preach? The answer is no. They invest a small percentage in stocks and a large percentage in cash value life insurance.
So how can we mimic what they are doing? How can we get a life insurance policy that will give us big growth in our cash value?
Whole Life Insurance for Cash Accumulation Purposes
First of all, just like banks, we need to be within IRS guidelines, so to qualify for the maximum tax-favored treatment, your accumulative account should include a death benefit. However, instead of trying to get the greatest death benefit for the lowest premium possible, you need to purchase the lowest death benefit required by law and pay the highest premium you can afford. This enables you to invest the greatest amount of excess cash in the policy beyond the true cost of insurance. In other words, you are reversing the approach taken by most purchasers of life insurance in order to use your life insurance policy primarily as a living benefit, rather than a death benefit.
A "770 account" (or a well-structured participant whole life insurance) is a private contract with no government intervention. It is also credit protected (thus the name "invisible account"), which is the reason why many millionaires and people from congress use this account.
Now, this is not your “typical” investment account, where you invest a lump-sum of money. In order to get all the benefits, you will have to make yearly contributions for some years – I normally recommend at least 7 years, which is the reason why this can be a great retirement account.
What Makes it a “770 Account”?
There are some riders and options that your agent will need to put in place for this policy to be a “770 account”– it is all in the policy structure. Each policy has to be “tailor-made” based on a person’s age, health, contributions per year, plans, financial situation, etc. Each policy is unique. Structuring a policy for cash accumulation purposes can be an “art,” and few agents know how to do it correctly.
Life Insurance Company
In order to get a “770 account” (the way Tom Dyson describes it), you need to be looking for a mutual life insurance company, so you can participate in the profits of the company (dividends). This is VERY important.
So I am going to give you an example of a client who is 45 years old – now remember, we need to include a death benefit, so the younger you are, the better. That doesn’t mean you cannot do anything if you are over 60 years old, but the cost of death benefit will go up significantly. However, there are other things you can do as a senior citizen (some people call it the “senior’s account”), but I will talk about that in another segment.
Let’s say that our 45 year old male (in good health), would like to contribute $40,000 per year, and he would like to make contributions for 7 years. With your normal life insurance, he will not see any cash value for the first 3-5 years, and then the cash value will start growing extremely slowly. He will normally need to keep contributing the $40k until age 100, and he will “break even” in maybe 15-20 years. For me, that is a terrible investment as far as living benefits.
However, by structuring the policy the way I described, we will make a totally different policy. This is how it would look:
Real examples/illustrations of a well structured whole life policy