Ep 186: Using Cash-Value Life Insurance for EVERY Phase of Life

If you're listening, you're a high income professional, you're a doctor, you're a business owner. You know, if you created, you know, you know, say, you know, say eight figures of wealth in your life, you can convert that to nine figure generational numbers within one or two generations. Which is, which is really wild. Welcome to the Next Level Income show where it's our goal to take your income, your investments and your life to the next level. I'm your host Chris Larsen. If you haven't yet, get a copy of our book for free at our website, Next Level Income.com. that's www.nextlevelincome.com. just click on the book link and I'll even send you a copy if you put your address in. On today's show, I have Blake Brogan and Rod Zabrisky of Money Insights. Blake is a wealth strategist at Money Insights and he's an expert in using permanent life insurance strategies to improve returns and alternative investing. He is co hosted the webinar that we have on our website@nextlevelincome.com click on the banking link and you can check out not only that webinar but you can also check out a free white paper and get a free book at that place. Rod Rod Zabriski is the president COO of Money Insights. He's also the co host of the Money Insights podcast I've been on a couple times here. And he and his partner Christian discussed the benefits of alternative investing and business ownership. Rod has a wide variety of investments including businesses, real estate and a fund investment. And today they are going to join me and they're going to talk about how to use cash value life insurance throughout your life. So you can talk about using it for, for an emergency fund. You can use it to help pay for your children's college. You can use it for business emergencies or emergencies that come up due to things like Covid like I did when I used it. Then you could use it for things like tax free income in retirement, long term care insurance and generational wealth creation. You're going to love this episode. Stay tuned. Blake and Rod, welcome back. Always good to see you my friends.

Hey, thanks Chris.

We're always happy to be here.

Yeah, absolutely. I love it. And you know what I thought we could do is we kind of geek out on some of these life insurance topics amongst the three of us and do really kind of like an ask me anything episode because life insurance, which regular listeners of the show know I'm a huge proponent of and there's, it's, it's very, it's very unique. And actually Tom Wall, he was just on an episode and this guy, as we were talking about before the show, has a very diverse background in the life insurance space, but he also has a PhD and he's done some research with some of the real thought leaders in the industry about how you can use life insurance. And it actually brought me back during that conversation to how I originally started using our life insurance policies. So just to, just to recap, for anybody who this is a new topic for, I suggest you start out and go to the banking page on our website and you're going to see a great webinar with our friend Blake up there talking about the investment optimizer approach. And I think that's probably a great place to start. Here is kind of how we really structure these policies and use these today. And then we'll talk about some of the ways which you can use cash value whole life insurance in multiple different ways and how it's very unique. But Blake, maybe you could do a quick overview of what the investment optimizer is.

Yeah, great. So the basic premise is before people are utilizing this strategy, if you're investing in cash flowing alternative assets, typically what's happening, you build your money up in a bank account, you see an opportunity to invest, you liquidate that account, you put it in the investment as that creates cash flow, that money's just going right back into the bank account. So you may be doing well with your investing like you're doing there. You know, the, the missed opportunity is often your dollars really aren't doing much for you in between those deals. So that's where the investment optimizer strategy comes in, really. It gives you a more efficient opportunity fund to fund the exact same investments that you are going to fund anyway. So you're not changing anything that you invest in really. You're just flowing the dollars into a high cash value life insurance policy that's again designed for, for cash and not necessarily for death benefit, although that does come. But basically what happens is your money can grow in that account right about 5% over the long term, it grows tax free. You have the same safety that you would have in a bank account with some guaranteed growth. But then most importantly, you have the liquidity so you can access the cash really as soon as 30 days after you fund the policy. And then the cool part is you're able to take a loan against the policy, go out and use those dollars to invest. And basically the idea is you now have your money growing in two places at the same time.

Yeah. And I think that that probably raises more questions than it does answered, which is why I encourage you to check out the webinar that we have on the banking link on the page. But it's, it's really, you know, you said, as safe as a bank account, Blake, I think we've seen in the last year with some of these regional bank failures and the limits on a bank account, I would argue that your cash value and your cash that you hold in your life insurance policy is actually safer. And it's, it's actually, it's actually protected from creditors in a lot of cases, depending on the state that you live in. But one thing that I find appealing is that this is actually, it's a private contract between the individual and the life insurance company. Is that right?

That's exactly right. And you know, you mentioned it's, it's a state by state deal, but a lot of these states have guarantee associations that, that back up your cash value. And again, the companies that we use are, are mutually owned companies, so they're able to take a very long term approach to what they're doing with their dollars. So yeah, over, over the life of these contracts, they pay dividends every year on top of the guarantees for 150 years in a row. And we haven't seen as many mutual life insurance companies certainly go down like we have banks, especially in the last decade or so.

Yeah, one thing that's really interesting on that too is that the, the banks are, they're out leveraging their money out. Right. So for every dollar they have in reserves, they might, they might, they might have, you know, multiple times that out where they've landed. It kind of, kind of fractional reserve banking. Whereas with this insurance company, that long term approach Blake talked about, they'll keep $1.15 in reserves for every dollar that they have promised out in cash value. So it's, it's a very, very different model.

Yeah. And that's because they're running a business and they have obligations that they're contractually obligated to oblige and they have to make sure that that money is there for those obligations. And I think that really kind of brings me, you know, nicely to why when I first started doing this, so I, my wife and I, my son wasn't born yet. My, we found out my wife was pregnant. And I'm looking at the calendar here, it was actually 14 years ago here, this, this month. And so he'll be 14 next year. So it was 14 years ago he found out he was. He was pregnant. I'm sorry. We found out he was pregnant over the summer. But this month I actually started our first policies. And my mba, if you can't quite see it here up on the wall, but it's in. It's in finance, it's in portfolio management. And I learned about, you know, learn more about life insurance and how you could actually accumulate cash value and then you could use this cash value for things. And I was looking at starting a 529 plan. I thought, well, what. What if my. What if my kids don't go to college? You know, this is like, it's going to be 20 years. And, you know, there's. Things are changing the Internet. What if they get a sports scholarship? What if, you know, what if, what if, what if, you know, what are some other options? And as I did research and I learned, know the places that insurance companies actually invested the cash that they had on hand. What I ultimately decided to do was I decided to allocate the bond portion of my portfolio to life insurance, and that would give me a lot more flexibility. Rod, can you talk a little bit about that? Like, you know, investors that. Or individuals that may use that in a strategy and why you would do that instead of just putting it in bonds?

Yeah, we. We often think of a well diversified portfolio as if it all has to stay with my brokerage account. Right. That's kind of where the terminology typically comes from. And what that means is that I have to make sure that I'm diversified across different types of asset classes, different stocks, bonds, you know, mutual funds, et cetera, ETFs. And what I would say is that if you look beyond Wall street, look beyond the brokerage account, then you'll actually find that there are a lot of very suitable investments that can help you diversify that portfolio in better ways than what are offered there. And so an example, bonds are typically the piece that people will go to for that kind of fixed income, fixed return piece, creating a kind of a stable foundation, so to speak, so that then you can feel more comfortable going out, investing in more risky things, foreign stocks or other things like that. Right. It's kind of balancing your portfolio well. Bonds are consistent. Right. Like, you know what you're getting when you buy a bond. But what's interesting is, is so are these kind of life insurance policies. And, and especially because of the way we design them, like Blake said, we're. We're minimizing the costs. We're maximizing the growth of the policy. So that even like take two years ago and interest rates were, had, had, were low and had been really low for a long time and the bond options out there were 2 to 3%. Or you could have a policy like what we're talking about, get 5% and have it be tax free. So now it's the equivalent of municipal bond in your portfolio because now you're getting the tax benefit, but again, just very, very consistent in the way that they've produced a return.

Yeah, and I think it's interesting because there are certain things that I get in my life insurance policies that I don't get with bonds. One of those things that we get to say, you don't get to say this with stocks, you don't get to say it with bonds, you don't get to say it with private equity investments like car washes or real estate is guarantee. You get a guaranteed rate of return by the insurance company. And that's what appealed to me when I looked at it. And I said, well, I want to save a predictable amount of money for my children. And a lot of people that have read my book, which if you haven't got a copy, please grab a grab a copy for free off the website. But if you've read my book, you know my story. My father passed away when I was five, so I had this very real knowledge that life is finite and something might happen to me before my kids reach college age like it did to my father. And I wanted to make sure that they would have money and resources that would take care of them regardless if I was there earning and saving for them. But also I knew that there was, there was a specific amount of money that would be there. So that was very comforting to me. So you get a guaranteed rate of return. So say it's like 3 or 4%. But Blake mentioned 5, 5 and a half percent. Where does that additional difference come from? Ron?

Yeah, it's coming from a dividend. So in a whole life policy Blake mentioned earlier, we're using mutual life insurance companies. And all that means is that when you become a policyholder with that company, you become a partial owner of the company, which means when they declare a dividend, they pay that out, you get a portion of that and you could have it as cash, they could send you a check or in. What we're doing is we're putting that back into the policy, create some additional compounding growth so that it turns that 3% into right now, depending on the company somewhere between 5 and 6% total when you Com. When you combine them. And what's interesting is, is that the, while the dividend isn't guaranteed in the same way as that interest is, the companies have just been so consistent paying these out. So the companies we're, we're using have been around for 150 plus years and they've paid a dividend every year from, from beyond that. And so it, it would, you know, it adjusts from time to time primarily based on kind of what interest rates are doing. So with interest rates being up, the expectation is within the next few years, we'll see those dividend rates rise as well.

Yeah, yeah. It kind of lags that, you know. So Blake, you know, using this type of strategy in lieu of a 529 plan for college, like, what would that look like and what are some of the advantages and potential disadvantages or differences between using life, a cash value life insurance policy versus a 529 plan or like a Coverdell or something like that?

Yeah, I mean, that's what I'm, I'm doing in my own kind of planning as well. I've got three.

I'm doing it.

Yeah, you mentioned. One of the big reasons that I'm a fan of using this is because really we don't know what the future is going to hold. So while the 529 can have some advantages like the tax advantage growth that it gets, it does have some limitations in the sense that when you take the money out, it's got to be used for whatever the government deems to be a qualified educational expense right now. So you might have kids who grow up 18, you wouldn't need to fund four years their college and that end up, you know, it could end up working out pretty well for you. You know, with my children being 63 1, I really don't know what the future is going to look like 12 to 20 years from now. I don't know. You mentioned college scholarships. Whether they're an athlete or from education. I don't know if they're going to want to go to college. It'd be great if they do. But the cool part about the accessing the funds via life insurance is that you have total control over when and even if you tap it and then if you use the funds, what you use them for. So no one is telling you exactly what you need to use the funds for. And I, maybe one other thing I'll mention is, you know, I went to College in, in 2009. So fall of 2009. You know, my parents have been saving for me in a 529 account. I know the market takes a hit. Well, because you have to use those funds for college. That was my time to go to college. So they're taking money out of an account that probably lost, you know, 30 or 40% at the time. You know, it might have had some run up before. You just, you just can't control a lot where with here, you know, we control what we're using the funds for.

Yeah, and I think that's, I mean, that's a great point. And I was just reading a article here this week. I put on my, my LinkedIn, which I try to, by the way, I post every day on LinkedIn. An interesting article with some comments that you can follow along. Real estate, insurance, stocks, all kinds of different stuff up there. But it talked about how the average return of, of the stock market is, is a myth. Because it's really, now, if you're, if you're a math nerd like me, it's really the geometric average that you get, which is, you know, when you average out the returns of the stock market over a period of time. And what that means is you could have an average return of the stock market. So let's say the stock market goes up 100%, right? So you put it in a dollar and now it's worth $2.

Sorry, if I'm getting 100%, I'm in.

Yeah, there you go. Guaranteed. Guaranteed 100%. Go for that.

Boom.

So, yeah, you put a dollar in, now it's worth $2. It's gone up 100%, but then it goes down 50% the next year. So you went up 100%, went down 50%. You add the two together, that's, that's, that's 50, right? 100 minus, minus 50 is 50 divided by two. That's 25% average annual return. But you're right back to $1. So that's just an example of how the average return of the stock market is not the actual, you know, geometric average. So it depends largely on, you know, how high the highs are, how consistent they are, how high the lows are. And it's what's called a variance drag that I write about in my book. And that's why I'm a big fan of anything that has more consistency, especially if it's time dependent. So, you know, the other thing is you're limited, right, with these, with these plans, with, with the options. So if you're listening and you're A real estate investor. You know, you may, you may be interested to learn that you can take money out of your insurance policy and actually put it into, you know, these investments. And, but Rod, you know, how does that work? If, if I'm an investor and I say, okay, I have $100,000 of cash value in my policy, you tell me I have to borrow the money to borrow my own money from the insurance company, so I'm paying for that money. Why put it in the insurance policy in the first place? Why not just keep the 100 and invest that on my own?

Yeah, it's a great question. And the answer is that it's the underlying account and what it's doing in the meantime. So because the fact is you actually could take your money out, just, hey, send me the 50 grand or whatever, I'm going to go invest in this syndication over here. And that would work, right? But now you have less money that's sitting in the account that's growing for you, right? What if instead you say, hey, send me a loan for the 50 grand, the full hundred stays in there and continues to grow. You take that 50 that you got as a loan, you went out and invested it in the car wash fund or something, right? And then as it's kicking off the return to you, and again, depending on the nature of the investment, you might have monthly cash flows coming in. So if it's me, I'm going to take that monthly cash flow, the net of that, and I'm just going to flow it right back, technically paying down the loan, strategically replenishing the opportunity fund to build back up to go out and invest in something else. So whether it's monthly, quarterly, once a year distributions, just flow that money back in towards that. But the point is, is that all the while that full hundred thousand stayed there and continues to grow. And so, yes, you are paying interest on that loan, Right? We're not telling you it's an interest free loan. But what happens is as I'm flowing that money back toward the loan, I'm paying the interest as I go, which keeps it from compounding on me.

So you keep in the webinar from compounding. Yeah, that's a great, that's a great point.

Yeah.

So, and if you go and take a look at this webinar that that referenced earlier, we'll do a direct comparison. We say, okay, what if it's the exact same interest rate, right? We're not even telling you, you're creating some sort of interest rate arbitrage or anything. Fancy like that. We're saying, hey, same 5% that I'm paying, same 5% that I'm earning. But when you take it and you say, ah, but I'm paying simple interest on the loan while earning, compounding interest in the account over time, you just end up earning a lot more dollars and cents than what you're paying on the loan. So again, if the question is, well, why would I choose to do that instead of just taking the money and go do it and why mess with the loan and all this stuff, those are the reasons why you keep that growing like we talked about earlier. It's just, just keep churning in the background.

Yeah, no, I love that. And one of the analogies that I like to use. So if you buy a $500,000 house with $100,000 down, so you put 20% down, so you have a loan for 400,000 and you pay, you pay that loan for say 30 years. So you're paying that loan for 30 years, you're paying down the amount on principal, you're paying down the interest. But let's say your house increases in value at 3, 4 or 5% a year. So over a period of time it goes up to a million dollars in value. It's compounded. The, the value of your house has compounded on the 500,000 you paid and continues up. So while the loan value, that 400,000 goes down and at some point hits zero if and when you pay it off at your 15 or 30 or whatever that might be. So that's another, that's another example. So you get to keep the spread between the increase in value and the decrease in your loan balance and it's, it's the same thing. So if you understand real estate, you understand how whole life insurance works and that strategy that Rod just explained.

Yeah, and just maybe to build on that, the beauty is we're specifically suggesting you take the loans and use it for cash flowing assets. So in your example, let's say you used it to buy that exact same $500,000 property and you put a hundred thousand of your dollars into it, right. And now it's a million dollar investment or value and you've paid down the loan. So you just, and again, yes, you were using a portion of those cash values to pay the, the amortized loan to pay it down to zero. But the point is you put a hundred thousand in, you created cash flow, you use that cash flow to pay off the loan, you ended up with a million dollar property. Yeah, these are, this is when I talked earlier about diversifying beyond Wall street and all this kind of thing. These are the kinds of things that you can do. And again, I'm not saying real estate is the. The catch all. And you put all your money in and all this kind of stuff, still create a diversified portfolio, but have stuff like this in there, man.

Yeah, no, it's. It's super powerful. You guys know my story. You kind of know the ins and outs of my. My policies. It's. It's been. It's. It's been. It's been powerful, but there also been times where it's been a real safety net for me. You know, Blake, we were talking about using this as. As an emergency fund, because people are like, well, I don't have enough money to do this. I can't do this and invest. And a lot of times when I talk to investors, and I just inquire, like, well, do you have an emergency fund set aside? Do you have money in equity? Do you have. A lot of times in my coaching clients, specifically, you know, they'll have hundreds of thousands of dollars just spread out between old retirement accounts and their emergency fund. If they're a business owner, they're working capital. You know, one of the things, Blake, that happened is, as I look back three and a half years ago, we're building the house that I'm sitting in today, and we're renting as we built. And I'll never forget, Covid shuts everything down. We were there. It was like, I think on Tuesday, the boys, the lacrosse coaches, sent them home. I found out, like, they were canceling all surgeries. Then I find out that there's a rent moratorium, and I'm like, our real estate, we don't have income coming in. I have no business income coming in from our. Our medical device business. I'm building a house, and I have to pay the bills. Because what's crazy is I had no income coming in, and my builder was like, well, we can still work. We're outside. We're. You know, we're still going. You still got to pay us. And the bank wanted their interest. So I was like. I was like, what do I do? And I simply went to the insurance company, and within three or four days, I had enough cash to cover all of our expenses for our family and all of our payments for our home for the next year. So, Blake, what are. What are some ways that people can use the cash value, you know, for. For things that are more. More for unplanned events?

Yeah, sure. So One of the, and I mentioned this earlier, but one of the really nice parts is you, you can use the cash for anything, right? So we call the strategy the investment optimizer. Ideally we're, we're using this to go out and create cash flowing investments with it. However, strategically, you know, I leave a, a portion of my cash value just there as my, I call it my one week money, right? So I do have some money in, in a bank account that's, you know, that I, I have access to right away. But as you mentioned, three, four days we can get access to the capital and the cash value. Now the reality is, is everyone needs, just like the story you laid out, everyone needs an emergency fund. I think almost everyone I talk to agrees with that. However, what I've just seen from talking to you know, quite a few individuals is when they have money, lazy money earnings, you know, maybe 1 or 2% now, but 0% a year ago in their bank account, they feel like man, I am losing, you know, inflation 7, 8, 9%. I'm losing every day by keeping money in here. So they're, you know, their urges to get the money out of their, out of their bank accounts doing something productive. And again, you don't know when a Covid or a, whatever you know, happens in life is going to come up. What I really like about just having some money here is like yes, I have liquidity, I have safety, like I'm going to get in the bank. But I know my, my, my capital is working for me. It's earning something I owing tax free and yet I still have all those advantages. So I think this is the perfect place for your emergency fund. Again, not every single dollar but, but the large portion of dollars that you're like, hey, if I need to tap into something, this is the ultimate place to, to grab it because of the, the reasons I just mentioned.

Yeah, I think that's a great point. And it's again, it's secure, it's private, it's earning a return that's typically at or above what you're going to get really with like a Treasury, even above, certainly above what you're going to get in like a savings or checking account, which is, which is very nice. And like I would say for us, it's our emergency fund. I talk about in chapter three, our opportunity fund, Rod, that you've referenced here multiple times. It's, it's our college savings account. It also can be working capital for business. So if you say hey, I want, you know, maybe, you know, maybe I Only need a quarter of working capital, but I want a year's worth of working capital. You can, you know, you can use it for stuff like that. But then the other thing is like, let's say you're a high income professional, you're a business owner. Like, you know, all three of us here today, our income goes up and down every month, every quarter. And you can actually invest with the, with the ability to take money out of your, out of your life insurance policy or using like a line of credit that I've set up. And then you can repay yourself back when you know that maybe you have a property being sold as we do right now. I could actually employ that capital without missing that opportunity. Or let's say, you know, my income goes up and down and I can say, well, I have a really good quarter, I can stuff a bunch of cash in there. I have a leaner quarter, maybe I have an unexpected expense, I can pull some out so I can smooth out my, my personal and my business cash flows, which is really nice. Today's show is sponsored by Money Insights and their investment optimizer strategy. In my book, I share how I use the same strategy starting over a decade ago and to invest my money in two places at one time. This strategy has been used by the wealthiest for generations for estate planning, minimizing taxes, preserving wealth and increasing stability for their investments. Now you can do the same thing. In addition, you can build a plan to build an emergency fund, pay for college, fund a business plan for retirement, and ultimately optimize your total financial picture. To find out more information, check us out at the banking link at Next Level Income.

And I would say, I would say that that is, that's like the epitome, right? Because we talked to, you know, when Blake described the investment optimizer, it was a matter of, hey, here's a place where you can have your money earning something instead of sitting in banking on earning next to nothing. And then, and then obviously there are other advantages as well. Well, for the same reason, it would not be great. It would be better to have the money in, in something like this rather than sitting in a bank account not earning much.

Yeah, so let's, let's take that to the next step as we kind of walk through, you know, an individual or investor's life cycle. Rod. So, you know, so now you have an individual maybe. And maybe even they say, look, Chris, you know, this is, this is really cool, but this is too much for me. I don't have any kids. I don't even Want to invest. I just want, I just want predictable income in retirement. I want to lower those things. I'm going to put all this money in there. But how do I, how do I get it out? How do I actually, if I'm using this as the bond portion of my portfolio, how do I get it out in retirement? What do I do?

Yeah, great question. And we've talked about how it's tax free, right. So all this kind of comes together.

How is it tax free? Like that's a good, yeah, that's a good question. Like how is it tax free?

Yeah, let's start there. So money going into the account is after tax. Okay. And that grows what's called tax deferred. All that means is as it's earning that interest on that dividend we talked about, I'm not getting a 1099 at the end of each year to pay tax on it as we go. Okay. So tax deferred then ultimately, when I'm accessing it, I can take it out tax free. Well, how do I do that? Two ways. So now we're in, in this kind of retirement phase, maybe we have created cash flow from other investments and, or retirement, traditional retirement accounts, Social Security. Well, in addition to those things, I can turn this into a stream of tax free income. So first thing I'm going to do is I'm going to take withdrawals out of the cash. And life insurance is unique in the sense that the IRS will let me take out my money first before I have to take any of the growth. It's called first in, first out. With most other accounts, annuities and other things like that that are tax deferred, I have to take out my growth first before I can access the original amount I put in. Life insurance is different.

Very interesting. Yeah, yeah.

And so that becomes a benefit in that situation. So I'm taking my money out first. So let's say I put a total of a million into it. Now it's worth three and a half million. So the first million I take out, I'm just taking as withdrawals. It's my cash. I already paid tax on it. There's no taxation on that. Right. If I continued taking more than a million out, then I would start paying tax on it because now I'm starting to tap into the growth. But instead, fair, we'll switch over and start using loans against that. Now before we were talking about using loans to go out and invest or as that emergency fund, you take the loan and you pay it back just the same. As you would kind of replenish your emergency fund. But in this case, I'm using loans not with the intent of paying it back, but so that I can continue to take that tax free. But what's happening is the cash value that's collateralizing that loan to grow just the way we described it before. So the interest that I'm earning on the collateral portion of the cash value is offsetting any interest that I'm going to allow to accrue on the loan while I'm now using it for income. So I, you take that income out as, as a loan. From that point forward, I build up a loan balance and then when I pass away, the death benefit is going to pay out and the first thing it's going to do is it's going to pay off that loan. Well, interestingly enough, death benefit is also income tax free. So I'm using income tax free dollars to pay off that loan. And then the rest, whatever's left after pays off that loan goes to my family. And that's how we complete that full cycle. Tax free or after tax going in, tax deferred, growing and then, but then everything coming back out is tax free.

Yeah, no, I think it's, and again, going back to the real estate analogy, this is like having a home equity line of credit. You're not taxed on money that you take out of your home equity line of credit until you sell the house. And again, depending on the, the, you know, if you, if you sell and you 1031 or you sell and you are within the, the limits of a couple that owns a personal home, there's a lot of things that you can, you can do for that. You know, Blake, another thing, you know, let's say. So we're talking about retirement income. What about, what about long term care insurance? This is something that, that it, you know, it comes up more and more. We have baby boomers that are about to start turning 80 in the amount of 10,000 a day. We started talking a lot about senior housing and assisted living on, on the show here recently. And I think it's going to be an area that's going to be very at the top of a lot of people's mind here over the next couple decades as we see this, this silver tsunami start to push forward. How does long term care, you know, blend into this?

Yeah, I even had someone just yesterday reach out and say, you know, hey, I'm, I'm dealing with my mother who's having some health issues. And it just got me thinking how does this, the, you know, what we have set up help me in this situation? So basically what happens and one of the nice parts is, is this comes free basically with every policy. So it's included with all kind of whole life insurance policies is there's riders that aren't necessarily long term care insurance, but it, it acts very much like it. So it's what's called a chronic or terminal illness rider. So simply by having this, this account, you have death benefit on there. And what the insurance company says is, you know, if you are chronically or terminally ill or, you know, have a diagnosis, you lose two of the six functions of daily living. On the chronic side, you know, you can tap into the death benefit before you die to pay for things like long term care, you know, whether that's in your, your home or whatever. There's not as many restrictions really of what you can use the funds for. So they know they owe you this death benefit. Right. And if they know you're going to pass away, you know, maybe in the next five years or so, they'll allow you to use that death benefit before you die to pay for some of the things that, you know, that may come up, certainly. But the cool part is, is it's not a use it or lose it type of thing. It's just included. If you look at where the long term care industry is going, and, and I'm not a total expert, but I know premiums are rising. Some of the policies that were available years ago aren't available now. You know, one of the cool parts about this is you have a, you know, things that could cover you in those situations that you may or may not use, but it just comes included with the policy setting up. Yeah.

And it's one of those things, when you hear it, you're like, why would an insurance company not make you pay back the loan? Why would an insurance company lend this money to you, Rod? Like, why would they. And you know this, remember, this isn't term insurance, right. Like they're going to pay this liability, right?

Yeah, yeah, yeah. So the reason is because they're in the business of making money as well. Right. So, and if you think about it in terms of like the interest rate that they're charging on those loans.

Yeah.

It's competitive with what they would get if they went out and they were buying bonds themselves or things.

So, yeah, they know, like what, what better security? Right. Sorry to interrupt, but what better security? You're like, this is your customer and you're the collateral, right.

Right.

And they own it. They have the other side of the contract. So it's like, it's like, what better, what better person to loan to?

Yep, yep. They're covered. The insurance company is covered if the person walks away and closes the account because they're going to pay off the loan first before they give them the rent, whatever's left. If the person dies, they're covered.

Right.

Death benefit pays off the loan first before they send the rest of the heirs. So it's a very secure loan for the insurance company. It's kind of like a no brainer. But again, like I said, in a lot of cases they're earning more on the interest on those loans than they would get if they were going out and buying bonds themselves, which is a win win for both sides.

Yeah. And it's all, it's all math. And that's what's appealing to me again, like I'm a very logical, analytical person and it's, it's all just based on equations, the law of large numbers that goes into that. One thing that really blew my mind as I looked at the math. And Rod, you and Christian came on and we talked a little bit about this strategy in the past couple years and it's something that we've certainly discussed in our family, which is, it's, and it's something we, I talk about my book, which is Generational wealth. So you know, if you have one of these policies, you can, and you say, well, you know, one of the things that really bothers me, sorry to take a step back. People say, oh, I just have term insurance. I'm not going to need life insurance when I get older. So we've already talked about some ways in that you can use it for retirement income, you can use it for long term care. But I think it's kind of selfish when people say, hey, I don't need insurance. It's like, well, do you want to leave a legacy? So let's say you have a family that says, hey, I don't need this insurance. My children don't need this insurance. How can people structure these policies so that they can create a predictable and really, I would call it a breathtaking amount of generational wealth by kind of waterfalling these policies, if you will. Yeah.

I think the operative word is legacy. And when I think about legacy, of course it has to do with the wealth that we pass on. But even more than that, I think it has to do with the, the customs, the traditions, the culture around wealth. What we're going to do with that wealth that we're passing along as well. So in this scenario, like when we look at these, you look at the traditional compound curve of this cash value growing inside of your policy as you're loaning against it and using it for your investing as you're turning it into income and retirement, etc. Right. So it's on this curve. Well, when you pass away, this death benefit pays out as well, which is always a larger number than what you had in the cash value. So what?

I'm sorry, so it's always a larger amount than you had in the cash value?

Yeah.

Okay, just kind of take a second and explain that.

Sure. Yeah. Maybe I'll go back to the example I used earlier where I had put a million into the policy. The cash value was now 3.5 million. Well, the death benefit is probably going to be know, 70 years old death benefit is probably gonna be something like 5 million. Right. So, and that, so that death benefit that in part of comes with it and ironically we're, we're minimizing it because we want to keep the costs down. But in reality, yeah, we're not, we're not talking about small numbers here. It ends up being a pretty significant thing. So if you think about on that curve, I put the million in, it grew to be three and a half million of cash value, but then I die and that three and a half turns into five million. So it's like putting your wealth on a curve, on this kind of compound curve with spikes and then what happens? Right, so, so going back to the legacy you have your, the 5 million that's passing on the next generation, what is it going to do? It goes into a trust with specific instructions that say take this money, put it in life insurance, use it to go out and continue to invest in cash flowing assets, alternative assets, real estate, whatever it might be. So again, you're continuing that legacy of what you've established and now that money is now in life insurance on your children, your grandchildren and then when they pass away again, another spike. So the, to me, when I see what people kind of the ambitions people have and the cool things they're doing and building businesses, building real estate portfolios, they are going to pass a legacy onto their kids. This is a way to be very intentional with the way that you do it and just make it more meaningful so that, you know, we, we actually did a webinar and ran some numbers on this. And the wild, the million, it changes from talking in the millions and hundreds and millions to billions. When you get two to three generations down the line and you have these spikes in the, in the wealth curve.

Yeah. So what, what Rod just said, and it really is like I said, it's breathtaking because within a couple generations you can even these are, you know, if you're listening, you're a high income professional, you're a doctor, you're a business owner. You know, if you created, you know, you know, say, you know, say eight figures of wealth in your life, you can convert that to nine figure generational numbers within one or two generations, which is, which is really wild. And it also makes you think that the wealth that's out there by the wealthiest families that have been around their wealth is hidden, it's protected, it's hidden in life insurance contracts, it's hidden and protected inside of trusts. So there's really no way to know how much a lot of these families really are worth unless they tell you and do that. And this is another rule and another thing that really wealthy families do is that you take that capital, you grow that capital, and then if, like Rod just said, you're using that capital from your life insurance to invest in real estate and then that real estate in these businesses are generating income. Well, the numbers we're talking about, that's significant income that flows into the trust that can provide a tremendous lifestyle for, you know, your family, your heirs, the causes that you really believe in in the future. And it doesn't even touch the, the seed capital that you put into it.

Yeah, one more, the, that legacy that you're passing on, a lot of times it is in, in the form of a business, in the form of real estate.

Yeah.

Illiquid assets that you would rather not them have to, to liquidate to be able to take care of obligations or pay estate taxes or things like that. That's another benefit that life insurance has is it's cash. In addition to these other places, which is probably where the bulk of the wealth is coming from, you have cash so that you can pay the estate tax, you can carry forward in the operation of the business and, or the real estate without having to start liquidating things. So that's another huge benefit to me on what life insurance can do in a, in the transfer of an estate.

Yeah, no, it's, it's fantastic. And this has been fun having this conversation because, you know, we've kind of walked through how life insurance can, can be a tool, a very unique tool going from, you know, when you're, when you're starting out as an individual starting a family, you Know, using it as an investor, using it for college savings, using it for an emergency fund, using it for retirement income, using it for long term care expenses, and then ultimately levering, leveraging it to create generational wealth, which, if you're listening, you, you and I know I've had this conversation with so many investors, is really important to leave behind, you know, that legacy. So on that note, gentlemen, any, any final, any final words before we wrap up for the audience here today?

I think the last thing I'll, I'll kind of leave it with is you. You mentioned the idea of a tool. This is a tool. I love that word. And it just gives you all the options. So it gives you as the business owner, the investor, the wealth creator, you know, total control. And what I love about it is you're not choosing between this and another strategy, right?

No.

All the things that you want to do, this tool will just enhance you doing what you're good at, what you're good at, investing at the wealth that you're able to create. So you. That's what I get excited about. It's again, we call it the investment optimizer. It's really just a way to optimize all the things that you are already planning to do anyway. So that's, that's where I get excited.

Yeah. Yeah, I love it.

My parting thought is, what if you could have this again kind of as an asset class differentiated from, from all other kind places that you could put your money.

Yeah.

And what if you average added leverage to that? Right. We have a, we have a strategy we didn't hit on very much here. It's called the capital avalanche, where we're building toward this kind of future retirement income, and yet we're adding loans, bank loans, leverage to it. And people are like, man, why would you do that? Well, the answer is because you want more income later. So just the same reason as leverage helped us in that example you used on the real estate. Same thing here. It adds, it amplifies, it enhances the benefits that we're talking about here. We just get more benefit on the back end by doing it in a conservative way, like, we're not talking about going crazy with it, but being, being smart about it, but still using it to your advantage. And that's another element of what we can do with it.

Yeah, it can be a fantastic strategy. So if you have, if you have a need, like a specific future need, you can align this capital avalanche strategy for that need. And remember, you're using leverage, as Rod said, but you're using it with collateral in a responsible manner. Again, much like real estate and with respect to leverage and banks like to loan against that because it's again, it's, it's quite secure. Gentlemen, it's always fun catching up. Blake and Rod are my partners at Money Insights. If you want to learn more if you want to connect with us and learn more about any of the strategies that we talked about, Simply go to nextlevelincome.com Click on the banking page and you can put your informat information in there. Or you can always reach out directly to me at chris@nextlevelincome.com hey Chris, here again. I hope you found this episode valuable. Now I have one more thing to gift you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also, please like share and take just 90 seconds to give us a rating on Apple Podcasts.