Everyone knows that life insurance provides a death benefit. Fewer know that you can use it to supplement your retirement. But did you realize you can use life insurance to increase your passive income THIS year?
Chris Miles shares how you can essentially “have your cake and eat it too” by using life insurance to invest NOW. Tune in to learn how to do this!
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How Can Life Insurance Increase Your Cash Flow?
I’m going to show this to you because you work hard for your money and you want your money start working harder for you right now. You want that freedom and cashflow today, not 30 million or 40 million years from now so you can live that life that you love with those that you dearly love. On top of that, it’s not just getting rich. It’s about getting and living a rich life because as you are truly blessed, you can create a greater ripple effect through the lives of others and bless more lives. This is exactly why we’re here. This is the ripple effect I’m working to create through you. Thank you for tuning in, binging on these episodes, and sharing these with other people that allow us to expand and grow this ripple effect because I could not be able to bless more lives without your help.
As a reminder, if you are looking for ways to be able to increase your passive income and you don’t know how to do it, or you’re looking for connections, strategy, and help to do so, reach out to us on our website, MoneyRipples.com, and say, “How can we do this?” You can even take that online Passive Income Calculator to see how much passive income you could create in the next twelve months. Check that out.
The common question or debate that comes up, especially when you talk about infinite banking and using life insurance is, “Can it create more passive income? Does this work, especially with investing and things like that?” Here’s the truth. Even though there are many great well-intentioned infinite banking-type of people out there, the one thing is they often think that insurance agents are not like investors.
If you truly want financial freedom, you want to follow the path that we know works. Theoretical stuff is great, but ultimately what it comes down to is you want to have a real infinite banking policy that can get you the max ROI possible so that you have a better chance of creating financial success. The debate is this. People will say, “Wouldn’t I be better taking my money, putting it in a savings account, and then investing it versus letting it bogged down by all these insurance costs and fees? If I’m trying to use that, I’m going to take years longer.” Especially with these infinite banking policies, they can be pretty expensive depending on the kind of infinite banking policy you get.
Many of the popular guys out there will have 40% of insurance costs come out in the first year, maybe 1/3. Still, that’s huge unless you’re almost 70 years old. You shouldn’t be seeing percentages that high. More likely, we should be able to have it more like 20%, but at least by year 5 or so. You have more in cash value than what you’ve paid into it, or at least close to that, depending on your situation, health and everything else.
The thing we always strive to do is that we know that no one out there will beat our numbers. As well-intentioned as they are, they still don’t cut their fees down as much as they can because they don’t tweak it like the way we do it. Granted when I’m showing you these numbers of how this could we’re creating passive income, this is based on our strategy. I guarantee the numbers will be worse if you do an infinite banking policy with another company. It won’t be the same.
I’m not speaking for all infinite bankers out there. I don’t want you to think that this applies to all Whole Life policies because it’s not true. In fact, when I ran the numbers before I learned how to get these numbers down, in the sense of the cost coming down so that you can have a higher return on your policies, I didn’t believe it either. I thought it was a bunch of crap. This infinite banker is trying to sell me. We have since proven it to work where you can essentially have your cake in 82. You can get your investment money to truly pay you twice when it’s designed the right way.
You can get your investment money to pay you twice when designed the right way. Click To TweetLet me show you that. I’ve put that disclaimer out there. This is based on the numbers we’ve run and these are real numbers. In fact, I use my own real-life numbers in this scenario. I’m a 45-year-old male. If you’re older than 45, not in great health or maybe in average health, these numbers may not be as good. If you’re younger than 45, I showed someone a policy that they’re born in 1988 and I was amazed. They’re eleven years younger than me and their numbers kick the crap out of my own numbers. Their numbers will be better. If you’re younger, even better. Even if you’re in your 60s and in decent health, this can still work for you. It just takes a different time.
I am showing you three examples here. The yellow example is taking your savings and investing them. This is not even by term and invests the difference. I’m not even taking out term costs here, which obviously would kill those numbers more. The blue one is using your infinite banking policy but only using the cashflow from your investment to pay back the interest-only not to pay down the line of credit. The green one is paying down that line of credit, doing this almost like a velocity banking strategy where people take out a HELOC on their home, invest it and use all the cashflow that pays down that mortgage payment. The same thing that we’re doing here as well. That’s the third option.
Let me start with a simple answer. If you’re using your savings, this is an example of somebody who had $250,000. This is like many of our clients that we work with. They have at least about $200,000 to $250,000 to invest. They already invested $250,000 from their savings and did a 10% return. It’s making them $25,000 a year, but they’re also saving $30,000 a year. You get them to stop putting into their 401(k)s and now they’re putting into savings so they can invest and buy real estate. That’s $30,000. This person has, in that first year, $25,000 of passive income that year plus $30,000 of their saving to be a total of $55,000. This is the number we’re using for both people here, the Whole Life example where they’re putting the money in the Whole Life policy as well as in this example here.
You’ll see, if you have $55,000, you make a 10% return. By the way, a lot of our investments usually make at least a 10% return, which is why we use that as a baseline. That’s $5,500. Therefore, their $25,000 plus $5,500 becomes $30,500 a year. They’re taking that $30,500, adding it to the $30,000, it makes $60,500. That makes them another $6,000 a year at that $60,000 invested. Now they’re at $36,000 a year. Do you get the gist? We’re basically taking the cashflow. We’re building it to buy more assets. We are creating what I refer to as an income snowball. Almost an income avalanche is what it is.
We do that and then by year 10, now you’re heading almost $130,000, increasing your cashflow to the point where you have $112,000 a year. When people ask, “Can you become financially independent in the next ten years?” The answer is, “Depending on your situation, you could be.” That’s why for all the clients we’re bringing on, our goal is if not all, at least 90% of them financially independent by 2030. This could be you too. $112,000 a year is very possible. This is not even factoring in growth. This is purely cashflow.
We’re not even talking about any equity gains in these investments. I’m using simple investments like they were investing in a 10% debt fund or something like that. $112,000 a year, nothing to shy away from. The question is, “Instead of putting $30,000 on top of that $25,000 a year, what if I took that $25,000 were making in the passive income and used that to fund a policy?” In this whole example, here’s what we’re doing.
It says, “There’s 47,000 in the first year.” Why? It’s because we’re still saving the $25,000 passive income, but we’re taking that $30,000 a year that we’re putting away towards savings. Instead of putting it in their 401(k)s or wherever else, we’re putting it into the Whole Life policy. In that first year of actual access to the money, it’s a little bit more than $22,000, but I like to do with even numbers. I was doing that in the calculation.
If you get a $22,000 loan plus the $25,000 of passive income, that’s $47,000 to invest. That is less than the $55,000 you have if you didn’t have those insurance costs. Essentially, what we’re saying is there’s been a net of about $7,000 you can’t access. The cashflow increase is $4,700 a year with that $47,000 and putting you at $28,600. You’re about $2,000 a year behind. Now, horrible, but you are behind. You stay behind for a little while because there are net costs in those policies for the first few years, but then about year 3 or 4, something starts to shift with these life insurance policies.
Pretty soon what’s happening is you start to earn more interest on this money and you’ll be able to use that to help you double dip. The real key here is that the dividends not only pay for the policy, but it pays for all of its own costs, but because you’re getting paid 5.75% or 6% a year in dividends, now that’s able to help accelerate. That’s like if you’re in a car and you know you are in the slow lane and you see cars passing you on the left, you want to eventually get to the left lane, don’t you? Unless you get off on the exit, you want to get to the left lane to go faster. Sometimes you have to brake and let some cars pass so that you can get behind that other car and then catch up. That’s exactly what you’re doing here.
I’m only showing you that the cashflow is just paying interest on these loans. With the interest being charged, we take that number out to get that net return and that’s why it’s only $28,600. It went from $25,000 to $28,600. That means you only netted $3,600. You had the $4,700, but you subtract out $1,100 interest costs from the Whole Life. That means you only have a $3,600 net increase.
I’m trying to show the net. I’m being very fair with these insurance costs coming out. Notice, as a search to gain more cashflow, by the end, when you get to the end of that 10th year, you’re at $111,918, almost $112,000. I didn’t do the whole buy-term invested difference. If I would’ve taken term insurance costs out of this number, still the Whole Life would’ve beaten it in ten years. Notice they had to catch up and eventually it will surpass. That’s paying interest-only. I recommend you don’t just do that. That is an option. By the way, you’re not required to make any payments on these loans with the life insurance company.
They’ll either accrue interest, which I don’t recommend, or you can pay back even at least interest-only. What if you took all that cashflow like you’re making from the increase here and used that to apply to the loan? The same thing still applies here. You have the $47,000, but the $4,700 increase goes to paying down that Whole Life loan. It knocks it down from $22,000 to $18,316. That gives you more to invest next year. Now you take out a loan again and you invest $28,000 next year. What’s happening is you start to have more to invest and by the end of the 10th year of almost $122,000, you are over $9,000 ahead of using your own cash from a savings or checking account.
Why? It’s because now you’re paying down that line of credit and then you pull it back out again. You pay it down as it goes through the year and you get charged daily interest on that life insurance loan. You pay it back, but then you take it back out again and reinvest it. You’re using the cashflow to pay down the loan, pull it out and pay it down. You’re doing that year to year. What happens is because you’re only paying on simple interest while earning compounding interest, you pay less interest than what you’re earning and that’s how you’re able to double dip because you never pull the money out. You’re not withdrawing the money. It is still earning all the interest in there and you also have a nice death benefit as a bonus to go with it.
Not only do you make more money and create more cashflow, but you even have a death benefit to go with it I did. I didn’t even use the buy-term invested difference. I wanted to be the meanest possible. I wanted to show no cost coming out, only making cashflow. That’s the key thing that I did there. This is based on my own life. If you’re older than me or in worse health, the numbers may not be as good, but there might be some options there. For example, I had one client who was in his 50s and very overweight but loved this concept and wanted to do it.
He said, “I already know I’m not going to be able to qualify for a very good policy here, but can I go and get a policy for my wife? She’s in great health and she’s younger than me.” I said, “Even better because if she’s younger than you and in better health, she’ll get an amazing return.” Now they’re putting $110,000 a year into their policy so that they can use that to invest and be able to get this double dip effect where you’re earning money in two places at the same time.
The critical key here is that we’re making more like, “Is it all about leverage?” Think about this, it might only be $9,000 a year, but that’s saving you from having to save an additional $90,000 to generate $9,000 a year. If you’re going to use those same dollars, you might as well make it work to your benefit. That’s what I love about this. Is this for everybody? Of course, not. If you’re paycheck to paycheck, I’m not going to recommend doing this strategy. If you’re barely able to make it, you’re in horrible health, maybe you had cancer or something like that, this may not work for you, but it might work for somebody else in your family, even a business partner or somebody like that that you could have an insurable interest in and make it work.
This is how it creates more cashflow. I’m going to mention this in a blog that comes up in a few episodes, but, there’s a way that even if we took out the cash value part of it. If it’s the death benefit, you can use the death benefit to increase your passive income as well. I’ll share that in a future episode. Needless to say, these are the numbers that many people, especially when they get hung up on the analytics, I know you’ve been asking for.
Here’s the proof in the pudding. There are no guarantees. These numbers can be better or worse depending on how it goes in the future. The great thing is you can always ask us and reach out to us at MoneyRipples.com and find out, “Is this a good option for me?” It might be. I invite you to do that. If there’s anything you get from this, reach out to us and see what we can do. If you’re already looking at other options, let us throw our hat in the ring.
I guarantee, if we don’t at least match it, we’ll beat it. That’s something that we do consistently and trust me that if anybody needs to save money on this and make sure that this works right, it’s got to be working right for your family. Do not make the mistake of doing a policy that’s less than par or the best so that it costs your family more and pays the insurance agent more money instead of your family. You get that choice. We choose you to pay your family more. Reach out to us with questions at MoneyRipples.com and make it a wonderful and prosperous week.