One of the keys to Indestructible Wealth that you may have never considered: Making money in two places at the same time. Sounds too good to be true, right? The key to this is going to surprise you. Don’t miss this episode featuring Rachel Marshall from The Money Advantage.
About Indestructible Wealth: I’m Jack Gibson. I’m your wealth strategist and I’m here to help you make some money. The Indestructible Wealth Podcast is for young entrepreneurs who want to make, keep and grow wealth to enjoy now, and for years to come.
Episode #15 – How to Make Money in Two (or more) Places at Once. Featuring Rachel Marshall from the Money Advantage
Welcome to the Indestructible Wealth Podcast. This is the place where we help young entrepreneurs to make, keep, and grow wealth that you can enjoy now, and for years to come. I’m your host Jack Gibson, a serial entrepreneur, founder of multiple seven and eight figure businesses, and wealth building strategist. Each week I’m going to share my tips, resources and secrets, to help you create a plan and build the life you’ve dreamed of.
Jack: All right everyone, welcome back to Indestructible Wealth! I have a very special guest, Rachel Marshall. Thank you so much for joining us today, Rachel. It is a pleasure to have you on the show.
Rachel: Awesome, Jack thanks so much. It’s my pleasure to join you today. Thank you so much for inviting me.
Jack: So really excited to dive into this concept because in my opinion this is the foundation of the entire wealth building plan that I train and teach and adamantly tell all of my listeners that they need to be building indestructible wealth
Rachel: I love that.
Jack: In order to have indestructible wealth if they’re missing this part, this piece of the entire process then I think they can say no matter how much wealth that they build that they truly don’t have indestructible wealth. so I’m really excited to dive in and talk to us a little bit about your journey and how did you get here into infinite banking and we’ll take it from there.
Rachel: Awesome. Well I am going to come back to that indestructible word because I love your mantra and this is absolutely something that we always say if you have any life event that can come in and make you poor or steal the wealth that you’ve built, it’s not really wealth at all. So I love how like-minded we are and this idea that you really don’t just want to create a lot of money. You want a lot of control. You want a lot of cash flow and you want a lot of protection in your life. So let me just rewind a little bit. I probably like you and your listeners as well. I came across Robert Kiyosaki back in the 8th grade, read Rich Dad Poor Dad, and came up with this idea that I really wanted to be in business and invest in things that produce cash flow for me.
Rachel: So fast forward my husband and I are dating. We’re talking about, Hey, let’s start a business someday. What in the world is that going to look like? We don’t have any idea. Fast forward, a little more. We got married. We ended up going to school together. Then we had kids a little bit later and I quit my job working after college and we were in a position where now we’re down and income, my income, we have the baby on the way or we have the baby, I became a stay at home mom and we said, okay, now is the perfect time to start a business. Now, financially we had been in a position where we’d been pretty good savers for a long time and we had first saved in bank accounts and we’re getting barely anything on.
Jack: What else would you say, right, exactly.
Rachel: Exactly. That’s the place to put your cash. And then we started really getting almost scarcity minded and thinking what happens if the dollar collapses. now mind you, this is 2008, we’re going into a timeframe where we’re saying the world is really going through a major upheaval how can we be safe and protected? And so we started putting our cash into gold and silver at the time seemed like a good long-term store of value but the problem was we got to a position where we said, well, we’re probably putting about half of our income into golden silver and then we’re at a position where we are starting a business we’re down that income we need the cash and oh, by the way, golden silver is cut in half of the value that we purchased it at. We hadn’t intended on using this cash. So the challenge that we came up against very quickly was around the 2011, 2012 timeframe just as we were getting our business off the ground and we realized we needed liquidity.
Rachel: And I’m just going to back up.
Jack: you couldn’t sell your gold and silver really because it was half the value of what you purchased at that.
Jack: So you don’t want to take a 50% loss
Rachel: But we have to.
Jack: And it’s not that easy to convert it to cash, right?
Rachel: No, it’s not. And you would think this is real money and it is real money. It’s a long-term store of value which is why we had it in the first place and we did have to sell it at a loss and it was really painful. We took the loss because we needed cash to start the business and the lesson we learned super quickly was, We have to as business owners and investors have access to cash that’s what liquidity means. It means how quickly can you turn this into cash? gold silver, You can sell through various vendors or you can sell to somebody who has a local market for buying and selling gold and silver but you’re usually going to take a loss there’s also going to be a premium that you take a loss on when you sell it. And it was really painful for us so what we discovered in that timeframe is we said we really should have been thinking differently about where to store this cash. We wanted to have savings. We wanted to have money that we could rely on if we had an emergency or investment opportunity or a business that we wanted to start but we needed a better place. And that really led us to looking at high cash value life insurance which you’re probably familiar with the term infinite banking. This ability to use a whole life insurance policy as savings or as a place to store your savings. And so we looked at that and we said we should have been funding life insurance – whole life insurance all along and then investing in other things. But we learned the lesson through the mistake. So that’s what led us into the business. We personally got a life insurance policy and then we said we need to be able to help more people understand the value of using this tremendously powerful tool. And that’s what led us into the business of helping people keep more control of their money.
Jack: So most people when they think of storing money like you said, I mean they’re going to think of their bank account. What’s going on, what do you think is happening in society that, and these policies have been around for what? A 100, 150, 200 years.
Rachel: Yes, usually about 170.
Jack: Why is that like, if you polled 100 people probably 1 out of 100 would really understand the concept that there is an alternative way to store cash. What, I don’t know 20 times higher interest rate than what you would get in a normal bank.
Jack: Or maybe more than 20 times, I don’t even know how you even do the math when you’re getting a 0.01% and your normal bank account. I got what I think, 56 cents the other day which was awesome. I don’t know $100,000 or something.
Jack: So what’s that happening? Why is there just so little awareness?
Rachel: Oh, that’s a very multifaceted question and super insightful. I think it’s really unfortunate that people have been almost blindsided in this misunderstanding of what life insurance is about. And we hear the term life insurance we think, oh that’s for me to have a death benefit paid to my beneficiaries when I die. And that’s where our knowledge stops and unfortunately there’s a lot of misinformation about whole life insurance that causes people to say, oh that’s a really bad investment or I don’t want to give up liquidity in the early years on my cash or I’d heard that it’s really expensive and that’s where the information stops. And we have these things that really just prevent us from digging deeper and figuring out if this is something that we really want to use for ourselves. And like you said life insurance has been around for a really long time. Most of the companies that we use have been around for about 170 years if you go back to before the great depression. they have consistently paid dividends and they’ve paid interest over that long span of time. If you look at most life insurance companies, the failure rate of a life insurance company is very low even compared to a bank. And when you hear that you actually can get better returns in a whole life insurance policy when it’s designed correctly, you have safety where you’re not going to lose money and you have access to your cash value that’s really attractive. I mean, that was why we started using life insurance. It was this, almost this Bulletproof place to put our cash that we got much better safety, liquidity and growth. And the unfortunate thing is most people just have no idea that it can be such a powerful tool and yet if you go back before the 401k and before people were using the tools that they have today life insurance was the place that people saved their money.
Jack: So I know for you personally you also had a health scare almost two years ago.
Rachel: I did.
Jack: And that kind of even further cemented your belief down to your very core right?
Jack: That’s just so important for people to hear what happened.
Rachel: Yeah. Thank you Jack for asking about that. And I think I stood you up for a phone call that we had during that time when I was in the hospital.
Jack: Totally that was one time where I would say all excuses are not equal. That was fine.
Rachel: Yes. So it was really interesting so we had the whole life insurance and then what was interesting is my husband and I have gone through an evolution in our understanding of life insurance even so if we back up to college we had about a $50,000 policy that was just a term policy on him. And we said, well that’s enough life insurance that’s pretty much all we need and that’ll be enough to bury him. And oh by the way, I’m not planning on working so I don’t need life insurance on me. I’m not a breadwinner. That was our limited knowledge at that time. Then after we found out that we needed more liquidity we said, well how much cash can we put into our whole life? That we can support with our income. So we did as much whole life insurance as we could at that time and that was probably about seven or eight years ago now then we had another evolution and we said it’s not just about how much cash value we can grow and how much savings we can put into life insurance.
We also need as much death benefit as we can get and the reasoning behind that was to say well if really something did happen to me or to Lucas who’s my husband how would we have as much death benefit as possible to be able to pay for our family to continue on if something happened to us? Now again, we put it in place as a if it probably will never happen, especially when you’re young and healthy and everything looks great. The crazy thing is that about two years ago I was pregnant with my second daughter. I ended up in the hospital about 10 days before I was due. And we ended up finding out that she had concerns and we had to induce right away that still wasn’t that big of a deal. And we proceeded with the induction only afterward my placenta would not detach which led me into surgery which caused me to hemorrhage and I went into a very severe condition that basically my blood was clotting all throughout my body and losing the clotting factor it needed to be able to stop the bleeding. So my husband is getting reports after I’m in surgery that 1st I can’t stop the bleeding. 2nd they stopped the bleeding but I’m in a worse situation.
So, I’m unconscious for 45 minutes in ICU following the surgery and I had no idea I was blissfully unaware at the time that I was very very near death. There was about a 50% chance that I wouldn’t make it. And if I did, I’d probably have long-term damage to my brain, kidneys, heart tissue damage. And the crazy thing with that is Lucas is in the hospital room with our new baby daughter. I’m in surgery and he’s getting these reports that I may not make it. And he is really having to deal with that we’re against mortality and really realizing that life is not certain and thinking I’m so glad that if Rachel doesn’t make it that we have the life insurance that would at least be that safety net to catch me and the kids so that I could figure out how in the world to navigate this situation that we never, never expected in our wildest dreams could possibly happen to us. And thankfully I’m here. My daughter is here. We all survived the story but I never was more convinced that I needed a death benefit.
Not just the cash value that I’m able to access and use and boost investment returns and can do all these amazing things in my investment life and speed up time and money freedom but I was never more convinced that I also need as much death benefit as possible. Because that one event could have come in and just stolen everything financially and emotionally and relationally from our family had we not had the life insurance in place. then I realized it wasn’t even just about the life insurance it was also having the right estate plan in place. It was about also solidifying what you want your state plan to do to carry on the death benefit in your family and what you want that to pay for so that your family can continue on the legacy that you’re building with your life. And that’s why I’m writing a book about that as well. So it’s just, it’s so important to make sure that you’re thinking about the unknown and really being in a place of indestructibility.
Jack: Man I get chills. Just hearing that story again. I mean obviously I know that was a very tough situation and so crazy to think like somebody who’s so young and energetic and full of life like you, like healthy that could potentially happen like 50% chance it’s crazy to think about.
Rachel: It was.
Jack: So I think a lot of us do. We think that nothing will ever happen to us and really that’s not how it works.
Rachel: And I don’t want that to be a scare tactic.
Rachel: I’m really in all stretch of the imagination what I think is really important for someone to hear though, Look, your life really matters and your life is extremely valuable to your family and to the impact that you’re leaving and if you want to create the biggest legacy that you possibly can then make sure that you plug all those leaks and those possibilities of something coming in and destroying the wealth that you’re building. And so it’s really important to think about how life insurance fits in not only to speed up time and money freedom but also to pass on that legacy.
Jack: So I’ve heard you talk about this a lot in your reports. You actually have some resources that we can put in the show notes that they can come and download from your site and all of that. And I’ll certainly make sure to post those. How do you talk about this concept? How do you make money in 2 different places at the same time? That’s very intriguing. How could that possibly happen? So tell us about that.
Rachel: I love the question and I think sometimes it almost seems like something preposterous. We think I can use my money to pay for it, I don’t know if I can put a pool in the backyard or I can go on vacation. I can buy a dog for the kids or we can do this extra fun thing. We don’t think about being able to do 2 things at the same time and we really have this mindset with money. And sometimes that comes from scarcity thinking that money is finite but sometimes it’s just the reality that money is a limited resource in many ways and we can really usually only use it for one thing. But what if you could use it for more than one thing at the same time? What if you could?
Jack: Sign me up.
Rachel: I know right. What if we could stack the use of that money and say well it’s able to be used to pay for college and also be used to buy a home and also pay a death benefit and also buy rental property and also buy another rental property and also invest in another business. So what’s interesting is that there’s usually an opportunity cost and you have to have the trade-off. However, when you use whole life insurance, you get 2 Birds, you kill 2 birds with 1 stone or you get your money to work in 2 places at the same time.
Jack: You have your proverbial cakel and eat it too?
Rachel: Exactly. So I like to call this an AND asset and if you will entertain me just for a moment I will tell you that normally people think I can put my money into savings or investments. and if I start having the saving or investment conversation most people will say well I want to invest because I get better returns in my investments I don’t want to bother with saving because well I don’t get any return there and it seems like I’m just putting my money to rest. I’m just putting it out of commission. It’s like soldiers that are sleeping in my army. It seems like it’s doing nothing for me. And so the necessary evil if you will is to say well let me just go invest this money even though there’s a possible risk of losing that money. I don’t want to just set it on the sidelines. However it’s not about saying I can save or invest. You can actually do both at the same time. And here’s how.
So when you put money into a cash value life insurance policy, we can talk about all the specifications later or you can get the guide and find out more details that way if you’re interested in finding out more.
Jack: And they have to be properly structured, correct?
Jack: Do what you’re talking about doing
Rachel: Yes. And I’ll just share the very brief overview it needs to be with a mutual company because that’s how you get paid dividends. It needs to be a specially designed whole life insurance policy, not any other kind of policy, not universal, not variable universal, not term life insurance. This is a whole life insurance policy with high cash value dividend paying with a mutual company. So once we have that, this is a life insurance policy that has a death benefit that will pay out to your kids, your grandkids, your wife, whoever you named as a beneficiary, when you pass away. And also it builds cash value inside the policy and the cash value is really important because this is like your savings account for lack of a better word. This is comparable to cash savings. This is not an investment, this is where your money is safe, it’s not going to drop in value, it’s liquid because you can access it and it’s growing better than bank rates. Now, hopefully I’m not losing you. Let’s back up.
Jack: Still with you.
Rachel: Okay. So we have this money growing in our cash value. What is really interesting is that while it’s growing in my savings tool of life insurance I can also use that money somewhere else. What do I mean by that?
Jack: Yeah how that possibly works?
Rachel: Right so here I’m putting my money into the life insurance policy and it’s growing in the life insurance policy. I can just sit it on the shelf and keep paying my premiums and not do anything with that policy and it’s still going to perform well for me I’m still going to have this cash value growing and I’m still going to have the death benefit and I can certainly have it as the set it and forget it asset. but I would really recommend driving that asset around and using it as much as possible. Here’s how you can use it. There’s 2 ways. 1, you can withdraw your cash value. We don’t recommend that because you’re going to have it’s not going to be as advantageous for you but if you borrow against it you are able to borrow against your cash value and put dollars to work in another asset. Here’s how it works. I’ve got my cash value growing here with dividends and interest. Now I’m going to take a policy loan. Now this loan is really cool because it is guaranteed contractually to be available to you as a policy owner so you do not have to qualify. you don’t have to tell them here’s what I’m going to use the money for, here’s how I know I’m going to be able to pay you back here’s my credit worthiness. Actually you don’t need any of that. No paperwork, except for this is how much cash value I have. Here’s how much I want, please send me a check and they say, yes, sir, yes ma’am. I will send you the check and you get your check.
Jack: Yeah. My experience was I’ve made a phone call and I have the money in about 4 or 5 business days in a wire.
Rachel: Yep. And that’s about right and they’re usually going to deposit that straight into your bank account or they’ll send you a check depending on how you set it up. And 4 or 5 days is just about exactly what we’re seeing with our experience in our clients as well. So contractually guaranteed to give you the money now are they giving you your money? This is the big question. So if they gave you your cash well then of course we’d be reducing the cash value over here, putting the money to work over here in an investment. But the cool thing is they’re not doing that. They’re leaving your full cash value intact. Collateralizing it and putting a lien against your cash value. It’s the same thing as a secured line of credit or a secured loan or something where you have this collateral backing the loan. it’s actually going to give you a better interest rate and it means your cash keeps growing the whole time, dividends and interest on all of your cash keep growing so it does not interrupt the compounding. What happens is the life insurance company gives you their money and you put their money or OPM other people’s money to work in another asset and get your returns over it and the investment too.
Jack: Yeah. So could another way for somebody to think of this because I had a real hard time wrapping my brain around that they would loan me the money out against the policy like it just like why would they do this? It doesn’t make sense. So there’s another way to think of it. Okay. I own my house and let’s say I’ve got $100,000 in equity and I pull out a HELOC home equity line of credit. So they’ve got the bank as collateral with my house.
Jack: They give me $50,000 in cash. So now I pay the interest rate on that note.
Jack: Is that pretty similar?
Rachel: Exactly very, and actually that is the analogy that we typically use because it’s easy to think about. I’ve got $200,000 of equity in my house I’m going to get a HELOC or a home equity line or a loan home equity loan and I’m going to borrow $100,000 of that $200,000 and yet that doesn’t drop my property value my property value is still intact in the house.
Jack: And my property can continue to appreciate, especially inside the market.
Rachel: Yes. Exactly.
Jack: Because you didn’t interrupt the growth of the actual asset because you still own the asset.
Rachel: Now here is where it’s different though, in a home situation if you think about where your money is sitting? I would say it’s within the 4 walls of your house. It’s just the easiest way for me to conceptualize. Where is my actual cash in the 4 walls of the house?
Rachel: Now, when I want to access that cash even if I say I’ve been really diligent I’ve made all my payments on time I’ve even sent in extra payments, and then paying twice a month so that I can pay that down quicker and build my equity faster. Say I’m even, I only have two payments left and I’m almost fully paid off on my house. The problem is I still have to qualify to get that home equity line of credit or home equity loan. I have to go to the bank to prove to them that I’m creditworthy to get my money. so the problem is I’ve made all these extra payments and I now lose my job. And this is not a hypothetical situation we’ve shared on our podcast as well. The money advantage that this happened to a really good client friend of ours as well and they were making house payments very diligently, lost their job. The bank said, sorry we’re not going to give you access or access to your home equity because you’re not going to be able to repay us. We don’t trust that you’re going to be able to do that. You’re not credit worthy at this time and they had to default on other obligations that they had wanted to pay for college for a child and the other was to pay for a wedding for the child, another child. And it was a really hard situation that they went through. So just because you have home equity doesn’t mean you’re guaranteed to access that capital. The other thing is right now it’s great for people who have their money in home equity because the value is rising. But what about if the housing market did crash?
Rachel: You can lose your cash, the value of that cash that you’d have to borrow against. So in a life insurance policy you cannot lose value, whatever your cash value is stated at today’s given point in time you can never drop in value. So when a dividend is added when interest is added, that sets a new floor and your cash value cannot drop below that in the future and then you’re also guaranteed by that contractual guarantee to policy owners that you can access the capital.
Jack: So no matter what happens in the market with interest rates, with asset prices, dropping, rising, whatever it doesn’t matter, your policy will never drop in value.
Rachel: I was just going to say.
Jack: Indestructible there!
Rachel: It is. And what’s really interesting is that we could go all over the place with this conversation, but I’ll keep it pretty simple. If you look at a policy illustration starting today and you say, okay, well, what are my numbers going to look like 20 years from now that illustration can only make a projection based on today’s dividend rates and today’s interest rates and say, okay, well we think if today’s dividend amount is paid out every single year for the next 20 years here’s what you’re going to have in cash value at the end of 20 years, the challenge is that right now we’re in a really low dividend rate environment because dividends are tied to the bond market, which is interest rate driven. And if we look at that we could say well, we’re kind of in the toilet or in the basement of what dividends could look like. If you look back 20 years ago, dividends were much higher. Where are they going to go in the future? I don’t know where interest rates are going to go and when a bond rate is going to go.
Rachel: I expect up in the future which would drive up the dividend rates inside of policies which would include, which would in turn increase the yield and increase the rate of return that you get inside a life insurance policy.
Jack: They really can’t go any further down I mean interest rates are zero.
Rachel: Right they can’t go much further.
Jack: Which a negative interest rate environment, I don’t know that the chances of that are too good. So they could really only go up over the next decade and beyond. So you’re saying right now the performance of a high cash value whole life policy is at a historical low and even then it’s still pretty good.
Rachel: That’s exactly what I’m saying and if you look at an illustration today a projection of what it could do for you if you’re just starting a brand new policy it’s possible that you could have even higher cash value rates than what are shown in the policy due to that very fact.
Jack: Okay. So to dive back into a point you made, I don’t know that it was, we drew this out so I can borrow against my policy differently than I borrow against my home value. What happens if I don’t, I can’t pay it back. I borrow money and I can’t pay it back.
Rachel: Very good question.
Jack: What happen? Do I default or do I lose my whole policy? Everything I’ve paid in, that’s what would happen to my house.
Jack: I default on and I lose the title and the ownership of the entire asset.
Rachel: Great question and super important to know what’s happening with this policy so you can make good decisions too. So when you take a loan we always suggest having a payback schedule in your own mind that you are personally committing to, but let’s just say I have $100,000 of cash value in my policy. And I want to go invest 75,000 in a, I don’t know, I want to get into a multi-family housing investment, or I want to invest in, I don’t know, Jack, how many properties would that purchase? 3 properties?
Jack: For $100,000?
Jack: Oh, $75,000 I mean, if you could purchase, you need about 25% down. So you take 75 times 4, you could get what, $300,000 worth of properties. So you have $300,000 single family homes.
Rachel: Okay. So say that’s what we’re going to do and so I’ve got a hundred thousand dollars of cash. I’m going to take $75,000 out. I’m going to leave some inside the policy. Now I could go almost all the way up to say $98,000 in cash that I want to borrow against but I want to show you something interesting. So the $75,000 that I’m borrowing against my cash all of my $100,000 keeps growing. I pull against the policy. I’m not taking it out, I’m taking it against the policy. I’m putting that to work in say 3 properties. I’m putting a down payment on 3 different properties. Now what happens?
Say a plan to grow those properties for appreciation. Say one of them. And I’m going to flip that property in 3 years. I don’t have to repay anything on that portion of the loan. I can wait and pay it all back at once 3 years from now, 5 years from now, say I expect to have the properties to cash flow and I’m just going to make up a number of say, $1,000 a month. I’m going to earn cash flow. I could use that $1,000 to pay back my loan, which then reduces the lien and frees up the full cash value kind of like a line of credit, again to be able to use for something else.
Now, when you have an outstanding loan, it will accrue interest. So if I had my $75,000 loan and I left it outstanding for 1 year, 2 years, 3 years that’s going to accrue some interest and it’s just going to be added to the balance of the loan. So let’s say 3 years from now, I haven’t paid anything back and now I don’t know, say it’s 5 years from now and now it’s maybe $80,000 lien I have against my cash value. Now at the same time the dividends and interest have raised the total value and it’s no longer $100,000, it’s maybe $140,000 that I have inside the policy or cash value. So while the growth of the policy is going up on top, my loan is continuing to grow. If you had a situation where you took a max loan and you never repaid it and the growth of your interest on the loan exceeded your total cash value. Yes, it could, you could come to a situation where the policy is no longer stable and the policy would collapse. So we don’t recommend being in that position.
However, what happens is when you put a policy loan in place, you’ll get a letter from the company saying, Hey, make sure you make your policy loan, repayments, and policy loan interest if you need to make your payment? You don’t have to make your payment, but you don’t want to collapse the policy either. So you have multiple options with that and we have many episodes on this as well, but if somebody took a maximum loan and then came into financial trouble and they couldn’t repay the loan and maybe they couldn’t make their premium payments either we have options as well to look at saying well can you pay from policy values? Can you pay your dividends? Can you surrender a part of the cash value to pay for your loan interest or to pay for your premium? There’s a lot of options and that’s why it’s really flexible because you’re not stuck having to make a fixed loan repayment. However, in the worst case scenario if you’re in a position where you say alright I need to surrender this policy. What they’re going to do is they would still be able to if the policy paid out say to your heirs you’re still going to get the full death benefit minus whatever your cash value loan is outstanding, your outstanding loan. Otherwise, they’re going to give you back what you’ve paid into the policy less your outstanding loan. So it is a redeemable situation. You don’t want to collapse a policy but you do not have to pay back your loans on a fixed schedule.
Jack: Surrendering your policy is definitely a huge mistake, right?
Rachel: I would say it is. And multiple reasons for that. I mean, the first really is that when you first get into a policy you’re going to have some upfront costs and that’s just like capitalizing any big venture. If you’re going to start a real bank out in the world, you would have to put up a huge amount of capital and it would be illiquid for a long period of time. This is capitalizing something you’re going to capitalize a policy as well and those costs are mostly front-loaded in the beginning of the policy. meaning I really love to talk about this because I think sometimes people get in thinking I’m going to build cash value. It’s going to be perfect and amazing day 1. And then they say what? I don’t have access to all of the premiums I’ve put in, in my policy the 1st year. This is a terrible investment.
Jack: That was really my probably my biggest beef with the whole policy cause I didn’t go on into it really fully understanding that and also the policy that I got wasn’t there unfortunately, if I had to do, if I could go back in time, but I didn’t know you at the time when I signed the policy, I would have, of course I would have gone through you because my policy was the way it was designed. It wasn’t awful. But as you saw that it didn’t give me enough liquidity coming out of the gate as fast as what was really Possible with these policies. So here I am, I put so much money in and I could draw some of it out but it wasn’t as much as I could have drawn out right now.
Rachel: Well let’s talk about that for a second.
Jack: yeah let’s talk about that for sure
Rachel: So what happens is when you put the cash in, in the 1st year, You’re going to use a lot of, not a lot, but you’re going to pay for most of the upfront costs, the cost of running the home office, the cost of keeping the lights on in the home office and paying for all of the staff that do the medical underwriting and that manage the money at the insurance company I mean, they have an entire staff just in the insurance company itself. That has to be paid for.
Rachel: And then they pay for people like myself who are educating people on how to use the policies in the form of commission. So there’s some costs that are coming out upfront. I would actually say the 1st year is kind of the worst. Well it is, it’s not kind of the worst year for the policy performance because maybe you put in $10,000 in year one, you’re probably going to have access to maybe $7,500 of that in the 1st year. Here’s what’s going to happen though. It’s like a Slingshot it pulls back in the 1st year. And then by about between years 5 and 9, usually about year 7, but not, it’s not a guarantee it’s based on your age, based on your underwriting status, based on your smoking status, your life habits. So generally we see about your 7, the policy cash value begins to exceed what you’ve paid in premiums. So the easiest way I can illustrate that is here’s your cash value which is growing. It starts here and continues to grow. And this is the premium you’ve paid and here’s the cash value you have in year one.
Jack: Cash value is less than the premium that you paid in.
Rachel: In that 1st year.
Rachel: And then they do this curve and about year 7, they break even. And then your cash value continues to grow beyond the premiums that you pay in. And then you always have more cash value than you’ve ever paid in premiums every single year going forward after that. And oh, by the way, your death benefit will always be way more than you’ve ever paid in, in premiums. So when you think about that in the long-term if I think look, I’m investing for something that I want to have around for 25, 30, 40, 50 years, or even to say I want this policy to pay out to my kids and I want my state plan to direct that when they get the proceeds of my life insurance paid in a trust that those proceeds will purchase as much whole life insurance as possible on that generation. you can continue that forward, you can ladder your life insurance policies and you can guarantee that if I, in my lifetime, put $1,000,000 into life insurance premium but that pays in, pays out $3,000,000 of death benefit. And the next generation has $3,000,000 that goes in and life insurance premiums but pays out $10,000,000 in death benefit so you can continue this cycle of building long-term family wealth over generations.
Jack: Because the payout isnt taxed.
Rachel: The payout is income tax free. That’s exactly right.
Rachel: So that, but it’s also always more than you paid for it in premium. So if you can think long-term it’s really advantageous for you the challenge is the person who says yes, well it’s not worth it to me because in that 1st year I had that backwards contraction like the Slingshot. the cash value was a little less than what I paid in premium. I just can’t deal with that. They will lose the tremendous benefit that is ahead of them if they can stay the course and see past that 1st year in 2 years. So then we can talk about policy design and we can talk about all the fancy things but really what’s interesting is that in a life insurance policy you’ve got base premium and paid up additions. If you just break it down to the simplest terminology. What happens is most people are familiar with a whole life insurance policy that’s all based on premium which takes a really long time to build cash value. it has a great death benefit, it has great dividends, but the cash value in the early years is really low.
Rachel: The trade-off is to say let’s get a lot of paid up additions which is a different kind of premium that gives you much less death benefit so it gives you a lot of early cash value. So if we think about this, the challenge with the super high paid up addition policy 1st year wonderful 2nd year wonderful. The death benefits lower which means you’re going to have lower dividends. So the long-term growth if you’re looking at that 20 and 30 years you’re not going to be having as great of a long-term growth tool.
Jack: So the key is how to balance.
Jack: The death benefit with the amount of liquidity or cash and value that you have, that you can then tap to borrow against the fund.
Jack: Expenses that are unforeseen that come up or buying your rental properties or all of that.
Rachel: Yes Jack. I couldn’t go through the show without giving proper credit to Nelson Nash who is the founder of the concept of infinite banking. Now he didn’t create it because People have been able to use whole life insurance for a very long time.
Rachel: But he popular is the term infinite banking and the infinite banking concept and he started by discovering that he had access to cash inside of his own whole life insurance policy that was kind of a last resort for him when he couldn’t access capital any other way. and he realized that he was paying way higher rates to access other financing and he was tapped out of that resource. And he said, oh, I can access my own money at a lower interest rate. Why in the world is not everyone doing this? And so he really started educating people on the ability to use their cash value life insurance. And so he really starts with about a 30/70 policy design. And I know this show is not the place to go into the technicalities but that’s kind of a starting point that gives you that perfect balance point between maximum early cash value and maximum long-term growth. But it’s not a perfect answer for every single situation that’s we work on a sliding scale from there based on the specific policy design or the specific policy that we’re working with and the person’s needs and their age and some people need more, some people need less, and there’s just a lot that goes into figuring out exactly where that balance point is for you. But I would caution someone to not think short term, the person who says I just want as much cash value in year one as possible and that’s the only thing that they’re thinking of will be disappointed because if you design a policy just to accomplish that short-term objective you’re going to lose out on the tremendous long-term advantage that you could have.
Jack: Okay. I mean, I think most entrepreneurs need liquidity for building businesses so bad I mean, I don’t even know what my tax liability is going to be from year to year. Right. I have no idea really. I mean I have some idea but I mean its plus or minus like a wide range.
Jack: I need this. I need my value intact in my policy, the cash value as much as possible to kind of protect myself. I don’t want to go into debt to the IRS. I’ve seen that with my friends so it really, really sets you behind. So I want to make sure that I have enough in my policies. Should I forecast it wrong? I can always tap that. Boom! I can have my money in a few days. Boom! I can pay off my tax liability with no problems. So. That’s the thing I think for entrepreneurs, they have to be careful not to try to have a cash value too high. But do it where, to the maximum of where it really makes sense and they’re not cutting themselves off short.
Rachel: Yeah. Well, and that’s a really interesting point that you make as well because it’s a fabulous way to think about paying those big ticket items.
Rachel: The real reason for that is that if I can continue the growth of my cash inside the policy while I take a policy loan to pay my taxes or take a policy loan to buy equipment in my business, or take a policy loan to go buy rental real estate or take a policy loan to pay for an emergency that was unforeseen, whatever if it’s an emergency or an opportunity, I think of it as an emergency opportunity fund. It does both. That’s why I can use it for multiple things but instead of saving up in my cash account and then taking the money out of my cash account, draining it down and then putting my money over into that big ticket item instead, I’m being the bank. And this is what Nelson Nash talked about in his book becoming your own banker. He said, if you can use banking principles to keep your cash and keep control of that capital like in a whole life insurance policy I keep the cash value intact and borrow against it. This money is still continuing to grow for me which means I can use all of the banking principles. I mean the bank keeps the cash as long as possible.
They give up as little as possible to you. They go earn cash flow and arbitrage and interest with the cash that they’re controlling and they’re in a position of paying you a tiny little interest rate while they can go make a lot more and instead of just being the customer that is allowing the banking institutions to be very profitable which they are. We can say, how can I flip the table and say, how can I step into their shoes? Control the capital, earn interest, use arbitrage by paying something I’m going to have to pay a policy loan to use my cash but how can I go earn more than that interest rate on the policy loan and how can I be in a position where I’m in control not just giving up control to the banks.
Jack: That’s awesome. So the last question I have, I mean, there’s certainly, we’re going to have you back on the show. So this is certainly a need to keep doing a deeper dive into this. Can this be considered a cash flow producing asset? Because you’ve talked a lot about how it kicks up interest in dividends.
Rachel: Yes. And I think that’s a great question. So and again, we could take this anywhere with this particular comment but I’m going to keep it nice and short and simple. I like to think of my life insurance policy as a garage. So I hope I think of it as a holding tank or a place to store my cash. Certainly it is growing with interest in dividends, but I think that is growing my garage larger.
Rachel: You could take out your interest in dividends.
Jack: You can take them out, so it could be a cash flow producing asset.
Rachel: Absolutely. It could. But what I like to do is I like to keep them inside the policy. You could call it plowing it back in.
Rachel: But my expectation is that I want the dividends and interest grow in my policy so that it grows my cash value as much as possible, grows my death benefit as much as possible because the cool thing is when I have a properly designed policy, it’s not only going to increase the cash value it’s also going to keep increasing my death benefit over time. And so I have this really powerful compound interest producing asset that’s going to just get better and better and better with time and I can use that to go invest in other cash flowing assets. So if this is my garage, I can put my money in the garage and hold it there until I’m ready to go invest it. Now I find the perfect investment, I borrow against the policy. I’ve put my money to work. It’s like driving the car out of the garage. I’m using it for the purpose of making more money. I put it to work in this other investment and then I repay my policy loan.
Now I’m able to take the money out of the garage and drive it to another income producing asset and back into the garage to repay that policy loan. Then I’m able to just recycle that money over and over into multiple assets. I’m able to use the same money maybe it’s paid for one property and that money was repaid through cash flow on the property. I may have purchased multiple properties then and was able to continue to repay my loan now I pay for college for my kids. Now I pay for a move for my son or daughter and I put them in a house I’m able to use the same policy or group of policies, many times people will like the concept enough that they want to continue adding on policies and form a family of infinite banking policies. and so what happens is I’m able to do more in my external investments than if I just put the money in the bank, took it out of the bank, paid cash for the investment and earned the interest and returns only in the cash flowing asset. So the way I like to explain this is that if I can use the AND asset, if I can use infinite banking to get my money working in two places at the same time. That boosts the returns that I’m earning in the cash flowing asset.
So it’s kind of like a turbo charge if you will, it’s an extra step that you can put your money into without any extra capital without any extra risk, that just makes your investments perform that much better. And we talk all about this in our guide. I’ll just mention this real quick it’s called the quick and easy guide, and the quick and easy infinite banking guide for investors and it talks exactly about how that happens we just use a very simple example of one cash flowing rental real estate property and it actually showed how the profits were doubled by using the AND asset the life insurance first rather than just putting the money straight into the investment.
Jack: So that tells me I can supercharge what I’m doing with my cash flowing assets by using this life insurance that most people would just overlook completely. Oh, that’s a boring asset. That’s way too conservative. That’s a bad investment is what most people would say. Meanwhile, I am getting all of my other financial assets in my life to perform way better.
Jack: Well, I mean, if you look at it comparative to say cryptocurrency you mean it’s the most boring thing on the planet?
Rachel: Oh, sure.
Jack: Cryptocurrency like mine goes up I think it was up 300%. it works until it doesn’t. Elon Musk puts out one tweet and the crypto markets crashed 20% overnight. Right. Whereas now I have my here I can seriously consider if it drops anymore, I’m going to just call up my infinite banker and pull a loan against my whole life policy and I’m going to use those funds and I’m going to buy crypto on massive discount sale. So that’s what people have to be thinking about too is that you have this store of value that’s just sitting there in your garage, right? Or an ever widening bigger garage.
Jack: You can just wait for things to go on sale. The money is continually growing at a safe and steady amount. Something goes massively on sale. Boom! Tap in. Borrow against it and have your money in 5 days. And now you can buy awesome assets, high quality assets that just for whatever reason went irrationally on sale.
Rachel: Exactly. I don’t remember who said it. I’m shooting myself for not thinking of the quote earlier, but they say that you can buy when there’s blood in the streets. I mean it’s when I don’t know. I’m going to say the wrong thing.
Jack: I think it’s Warren Buffett.
Rachel: Yes. That’s who it was. I was like, I was thinking of Richard Branson, I couldn’t get his name out of my mind.
Jack: Absolutely sure that was Buffett.
Rachel: And it was this idea that when there is a bloodbath when everyone is fleeing AND asset because it’s going on sale and it’s losing money you’re the one with cash that is positioned to be able to make an educated decision to invest in something that everyone else is leaving. And it’s just very interesting that the people with cash are always going to win. And it’s interesting because most people discount the idea of saying I have cash they say, I just want to invest straight away. We use that word in our house. I know it’s not a real word.
Jack: I don’t want cash because it’s being devalued by how much money printing is going on and it’s not earning any interest so they’re not thinking about putting their cash in a different place that actually does grow, gets dividends, it gets interest and that can still be tapped in borrowed against tax-free to get the buy the stuff when there’s blood in the streets.
Rachel: Exactly and, oh, by the way, we didn’t mention this before but normally we’re seeing if you look at the growth rate on a life insurance policy, and again if we say 30 years what would it have taken in a tax free so an after tax interest rate to earn this cash value based on how much we’re paying in we’re usually seeing that’s between about 3% and 5% rate of return and that is tax-free so you would need to be getting probably 4% to 8% on your taxable accounts to compete with that. And that’s almost a poor comparison because it makes somebody automatically think, oh I should compare this to an investment when life insurance is not an investment but I just like to share that because it is really helpful to realize you’re earning a lot better than bank rates on cash that’s comparable to what it would be doing in a bank account, sitting for you being accessible and liquid and not dropping in value.
Jack: Awesome. Okay, Rachel. So how do people get ahold of you? If they’re saying what this makes sense. I want to learn more. I want to book a call or I want to strategize how to get this going. What do they do?
Rachel: Perfect. All right. Well you can head on over to themoneyadvantage.com we have everything that you need right there on our homepage we do a lot more than just infinite banking but that is a big part of what we do because most of our clients really want that protection and safety and liquidity so that they can use it to maximize their investing strategy. So if you go to themoneyadvantage.com you can do multiple things right there. You can get our quick and easy guide that explains more about infinite banking that’s completely free. There’s a booklet that you can download along with a quick video course just really to get your bearings in this idea of what even is infinite banking and how possibly does it work and how could it work for me? And if you have heard enough already and you’re ready to jump straight into a call with our advisors, you can do that as well. There’s another button right on our homepage and you can jump over to our advisor calendar and this is a consultation for anyone who is saying what I’m doing right now is working but it’s not working as well as I need it to work for me. It’s not doing as much as I’d hoped and if you’re really just sitting there saying I’m saving a lot. I have good savings habits but they’re not paying off for me the way that I want them to or I just want to know that I’m on track for whatever I want to create in the future. I want to know that I’m doing the best that I can with my money. So you can hop onto our advisor calendar and you can do that straight through our website at themoneyadvantage.com. We also do have a course if you really wanted to deep dive into infinite banking. We also have a podcast called money advantage podcasts that you can find through the same website. And so everything is that one hub right there.
Jack: Okay. She’s got over 180 episodes that you guys have produced so far.
Rachel: Yes we do.
Jack: So congrats on your incredible consistency and success on your podcast. That’s no easy feat.
Rachel: Oh thanks Jack.
Jack: Alright, well everybody that’s Rachel Marshall the money advantage. Make sure to check out our website and get those resources and book or call and get this going. This is like I said before we’re trying to create indestructible wealth. This is from my opinion this is the most important foundational piece of indestructible wealth. Have a great day.
Rachel: Thank you Jack.
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