A Better Way To Save Money By Becoming Your Own Bank with Sarry Ibrahim

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Now here's your host, Brad Costanzo.

Hey, welcome back to Bacon Wrapped Business. This is Brad Costanzo and today I've got a very interesting interview today. This is an expert in a concept that I first became familiar with about 10 years ago. I want to say, and looking back on the past 10 years, it is one of those things that I, I didn't take action on and I have a little bit of past regret that I didn't do it because it made a lot of sense to me back then. But life got in the way and started going down different paths. But today I'm coming full circle to bring an expert in this strategy called bank on yourself which stems from this infinite banking concept that some people may or may not have heard of. However, if you have not heard of this and, and you are.

Saving money, investing money and getting the best returns, especially risk adjusted returns for your money and capital is something that you find important, which you all should, then you're gonna wanna pay close attention to this because you're probably going to hear about a strategy that you've never even considered in the past unless you know specifically about this. And if you, if you're anything like me, it'll cause you to go down the rabbit trail of learning more. But I hope to shortcut that process by bringing my guest today, Sari Ibrahim on the show who's an expert in this bank on yourself strategy. And well, without any further ado, Sari, welcome to the show bacon wrap business. Good to have you.

Hey Brad, thank you so much for having me on. I appreciate it.

Yeah, my pleasure. So as I mentioned to just now, I'm familiar with this but I've never actually pulled the trigger on it. A lot of people I talked to have never heard about this before. It's something that is totally different. So I really want to kind of dive into the, I want to dive into the basics of the strategy and just lay the groundwork because for a lot of people it's like, wait, how do I wrap my brain around this? But before we go into the exact details about what this is, tell me a little bit more about you, like why, why are you qualified to talk about this? Tell me about your kind of professional career and how you got to this point?

Yeah, definitely. So I started in this career when I was doing my master's degree in business in 2016, and I started working at Allstate Insurance. I was more in the sales and marketing department. And then I kind of left that world and went into healthcare. And I was working at companies like Blue Cross, Blue Shield, Humana, Cigna, healthspring, and I was like a Medicare broker. So I was helping people who were retiring and merging onto their own Medicare plans. And I started to build a relationship with these clients. And one of my clients asked me if I could help him with life insurance. And he even said something like, it has cash value, it builds up over time. And I wasn't really sure of what he was referring to, but I had my life insurance license at the time and I told him I would do more research, I'd get back to him. So I went on Amazon and I searched for books about life insurance and I came across a book written by Pamela Yellen. It's called the bank on Yourself Revolution. And the book pretty much talks about the strategy called the bank on Yourself strategy. It also stems, as you mentioned, stems from the infinite banking concept. So pretty much as I was reading this, I was like, this. Actually this is very like, relevant stuff and it could help a lot of people. Pamela mentions a lot of problems with investing, like investing in 401ks and 403bs and pretty much investing in the stock market and the risk associated with that and how you can take control of your financial life by using saving strategies that have been around for over 100 years. So it's not like we invented any of these. They've been around by insurance companies, have been around for a really long time. And then at the end of that book, there was a section that said if you wanted to join our organization as a professional. So I filled out the application, got approved, went through like an eight week training program with them where we went through like financial services and the concept, and then started my company called Financial Asset Protection, which is a firm. We specialize on this concept, the bank on Yourself concept, and pretty much help real estate investors and business owners pretty much take control of their financial lives and pretty much recoup the interest they would otherwise pay to other lenders. They can kind of retain those, those profits.

Beautiful. Love it.

And that's a perfect segue. So let's go into the overall strategy. Like you mentioned, this is not something new. I first learned about this. Are you familiar with the elevation group.

Elevation group? No. Are they, do they do the same thing? Like.

No, no, no, no, they don't.

But.

So Mike Dillard is a guy that I know and he's, he's kind of godfather of the, in the online, online marketing space. And years ago, he and a partner started, they started an online membership talking about really innovative financial strategies, typically the strategies that are used by the top 1%, but making them available educational wise to everybody else. And one of the very first concepts he covered in there was this concept of being your own bank and banking on yourself and infinite banking. All of these terms are somewhat synonymous. Obviously there's nuances. And, and I remember reading this and he's like, look, this is going to sound really crazy to you when you hear what's possible, but understand that this has been, this has been.

They'Ve been using this like especially very rich people have been using this for years and years and years and only recently has it kind of come to the forefront of.

People'S consciousness. So let's go over the strategy. Like, you're probably better at summing it up in a nutshell than I am about, you know, what is the purpose of a bank on yourself strategy.

Yes. The purpose of it is being able to keep the money you make. Because if you think about it from a business perspective or even as an investor perspective, it's not how much you make, it's how much you keep. And then not only how much you keep, but how long you can keep it for and how many generations you can keep it for. So that's pretty much, I think, the roots of the bank on yourself strategy. It's the ability to keep the money you're making and you're able to do so because it's not an either or approach. It's not either I put money into a whole life insurance policy or I put it into my business, or I put it into real estate. It's a way for you to combine all these things together so you can fund a whole life policy, grow the cash value in it, and then when you want to access this cash value, you would simply borrow against it, leveraging the cash value in it, and then use that for whatever you want and then be able to pay yourself back on your own terms. Now think of it this way. Imagine you have like a savings account at a bank, right? And let's say this bank is going to give you 5% interest on your money, compounded on your money. I don't know any bank that does this, by the way. But let's just say there is a bank that does this maybe 20 years ago. Now, thinking about this, you have the savings account that has, you know, for example, $100,000 in it, and it's earning 5% interest. Now, when you want to access this money to use it for business or to spend the money to pay your bills, whatever it is, you have two options. You could borrow, you could take the money out of it, you could withdraw from the principal of it, or you could borrow against it at a lower interest rate. So let's go through each one. So let's say, for example, you just simply withdraw it like, just like a regular business, a regular bank account. You would interrupt the growth of that now because you reduce the principal and then you reduce the future of earning interest on that money. So if you take out $1000, you're not just taking out $1000, you're taking out $1000 plus the loss of opportunity cost. Had you had just that money kept in there earning 5% compound interest. But instead, if we borrow against it at a lower interest rate, we can continue that 5% growth on that money while still having liquidity. And that, I think, is another key element of the bank on yourself strategy is that you're not locking up cash. You're pretty much placing it somewhere and then borrowing against it at a lower interest rate on your own terms and pretty much being able to use that money for whatever you want. So we're still going after the higher returns. We're still doing real estate investing. We're still investing in our businesses, but we're doing so with different dollars, dollars that come from a whole life insurance policy. So this way you could do both things. You can invest, you can invest in your business or real estate and grow your money in a whole life policy at the same time with the same dollars. Right?

Yeah. And it's one of those things when I first heard about it. So my background, when I got out of college, about two years after college, I took a little break, worked for Disney World. I said I was preventing a midlife crisis, just screwing around. But after to, I was a financial advisor for Prudential Securities. I was licensed to sell insurance, although I don't think I ever sold a single insurance policy in my life. I was all focused on mutual funds and stocks and bonds, et cetera. And I just remember thinking, even from a young age, because my dad was a financial advisor, you don't buy, you know, you buy insurance for death protection, and then you invest the rest. Insurance, whole Life, universal life is not an investment, it is protection. Don't confuse the two. Because, you know, and I, and I'd been indoctrinated really, that especially whole life policies are so expensive, they're a waste of money and blah, blah, blah. So I had a lot of reticence going into this because I heard whole life, I was like confusing expensive and not for me. But what makes this strategy really interesting is the way that the whole life policy is used and it's not. You're not talking about a traditional whole life policy that you can just buy from somebody else. Right. There's special riders and there's special addendums to this that make this possible. Whereby, and I want to sum up what I think you just said just so that when I repeat it, you tell me if I got any of this wrong. But you fund a whole life, this special type of whole life policy, and after a specific period of time, which we'll go into the details and talk about, you have access to the cash value of this policy. And anybody who's got an insurance policy should understand what the cash value is that has a typically a guaranteed or sometimes variable return on it of x percent per year, which we'll discuss what people can kind of expect. And then if I want to borrow against that policy, I can do so. If I want to buy a car, take a vacation, buy a rental property, whatever I want, I can borrow against that money. I don't have to pay taxes on the money that I'm accessing, which you didn't cover. But I just know this, right? Let's say I've got a cash value of $500,000 and I want to borrow 100,000 to buy a house. I can take that from my policy, I can go buy the house for cash. But my policy, and this is one of the big things you mentioned, continues to grow.

As if I never took any money out or borrowed money.

Right.

It continues to grow with the half a million dollars earning whatever interest it's making, and then the money that I take 100,000 that I take out and I put it into, let's say a real estate that's earning 10% a year. Now.

In essence, it's like I'm double dipping. But the key to making this all work is the discipline to pay yourself back and to pay back with interest because otherwise you're just really stealing from yourself in essence. Right. Did I kind of get the majority of that summed up correctly?

Perfect. Yeah, that was a really good explanation. Cool.

So, and I think that's the piece that a lot of people real, once it sinks in, like wait a minute, I can access the cash tax free without it harming the returns that the other one is getting. And that I had to read that like seven or eight times to get a, just go, you know what you talking about, Willis? That seems too good to be true.

Yeah, yeah.

So let's talk about, okay, so let's go through a couple of big, big benefits once more about this. So.

As it compares, like, compared to some of the other investments, especially tax advantaged investments like 401ks and IRAs and Roth IRAs and mutual funds, et cetera, like what are some of the, you know, what are some of the big advantages and disadvantages of this?

Yeah, so let's see, let's talk about 401ks for example. Let's say you have a 401k and let's say you're maxing it out. You're putting in $20,000 a year. You're 40 years old, you're maxing out your 401k, putting in $20,000 a Year. And now let's say, you know, five years goes in, you have the 100,000 cost basis, how much you've put into it, plus some returns hopefully. But now you come across a real estate deal, you want to jump into real estate, you want to buy a multifamily building, whatever the case might be, you want some liquidity. Now, now when you access, you can actually can't access the 401k unless you do a loan, of course. But if you access the 401k, then there's a 10% tax penalty or then because before the age of 59 and a half, so there's some liquidity constraints with a 401k also because it's tax deferred, meaning that you're deferring $20,000 a year going into it. When you take that money out in retirement, you're going to have to pay tax, ordinary tax on it after 59 and a half. But the problem is, is that taxes right now are super low. And a lot of financial advisors and financial planners make the argument that taxes will go up in the future because of the debt, the national interest debt, because of Social Security, because of Medicare, because of post 2020. What happened with the government? How much did the government spend on Eidl economic injury disaster relief loans as well as Patriot protection loans as well as unemployment, all these things. The government is going to need a way to recoup These because it's just like any other organization or business. When they spend too much, they need to recoup those costs. And 401ks and pre tax vehicles, those are the low hanging fruit. This is all mentioned in the book called the Power of Zero. So I recommend that book. And pretty much when you use whole life insurance instead of these different pre tax vehicles, you create a hedge against these spikes in tax rates. Not only a hedge against market fluctuations, but also a hedge against tax rate fluctuations. So that's a huge advantage there. And then also liquidity too. So you have the ability to access these funds while you're saving and growing and earning interest in these accounts.

Okay, fantastic. I love it. So let's get into, let's get into some of the nitty gritty because I want.

My, my listeners, I want them to go like this is super fascinating. I need to learn more and probably schedule a consult with Sari here, which at the, at the end of the, in the show notes, et cetera. If people want to get ahold of you and say hey, would this work for me? We're going to provide all the opportunity for you guys to out directly to Sari and see if this is something appropriate. But let me speaking of appropriateness, let me ask this.

I know for a fact that if you're undisciplined, like one of the keys to making this a really powerful strategy is the discipline to pay yourself back when you access your cash. Because if you just take the cash out, like oh woo hoo, I don't have to pay this back, you're basically robbing from your death benefit and your cash value and you're negating the benefits of the property. So I've heard that look, if you're not disciplined, well first of all, if you're not disciplined, this could be a good way to stay disciplined, to create a discipline. But give me a situation or two or three whereby you wouldn't actually recommend this for somebody. Like is this, I don't believe that everything is one size fits all. But are there any people situations, et cetera where this is not recommended? For instance, one example would be like a certain low income level versus or a, you know, senior citizens or you don't have enough time to do this. But yeah, give me some of the things that would disqualify some this from being an ideal situation for somebody.

Yeah, there is going to be a capitalization period, a period of time where you have to fund the policy so you know you're getting a cushion of you Know, the lowest policies we've worked on are on $300 per month. So that's typically like the low range. And then they can go all the way up to like a million dollars, you know, a year in a whole life policy. Even more than that, you know, with large corporations. But pretty much you need a cushion of like, you know, three to five hundred dollars per month. So if you're living paycheck to paycheck right now, you're a W2 employee, you're still young. Maybe this is something that you should just learn about and understand it. So that way, when you do get more money, you know where to kind of store it. You know, when you have a cushion of three to $500 extra a month. And like you mentioned, it takes discipline, but also it can create discipline as well. And that's what happened in my case. When I started my first policy, I was putting in $300 a month. And as I was doing this, at first it was like an expense. You know, I had no other choice. I wasn't going to pay five months and then cancel it. The whole thing would just collapse and it would be pointless. I would have lost that money. But as I'm putting money in, I was like, you know, I got used to it, and now it became like a habit. And then I started paying it off yearly. And now I'm going to do a second policy. I did one on my wife. She has her own policy. She's a nurse, and she wants another, an additional source of retirement when she retires. So pretty much it became like, it's almost becoming like a lifestyle habit that's created by the policy. For a lot of people, saving is really. It's really difficult. You know, 60% of Americans don't even have $1,000 in a bank account.

I've seen that statistic. It is very scary.

Exactly. And it's not really an income problem. It's more of a savings problem, you know, and because our money is so liquid, it's so fast, I think about it, you have direct deposit. The money goes into your bank account. And then you have debit cards, credit cards, you know, quick pay, you know, mobile apps, numerous mobile apps that you could buy. Amazon, you could buy anything pretty much on your phone. So money comes and money goes quickly. So if you could figure out a way to kind of capture and slow it down in the sense of on the holding side, if you can, you can consider you can slow it down. That'll increase the chances of you saving, which will, of course Increase your savings over time and the strategy will help you with that. You know, Even if it's 300, $500 a month, just being able to have to keep the money that you're making will change your financial outlook.

Right. What about like senior citizens? So, you know, what about somebody who's let's say 70, 60, 70 years old.

And like closer to retirement or in retirement, are there, you know, because there is a capitalization requirement, et cetera, and a lot of times they need, you know, they're living on fixed income, etc. Is, is this something typically for them or should they are they probably missed the boat.

It could be for them. I've worked on cases with people around the age of 70. So for example, one thing they could do is let's say like, and of course they would have to have larger sums of cash, but let's say they had like $500,000 in a CD or in a money market. They're probably putting it there because they don't want to put it somewhere that's risky. Obviously if they're 7 years old, they can't afford any risk. But what they could do is they could buy like a single premium whole life policy where they would move over from the CD or the money market or just a regular bank account into a whole life policy. They would buy up an entire premium of a policy. It's like buying a house, cash. They would just buy the whole thing and then instantly have like a death benefit of like $850,000 or $900,000 that would be tax free to their beneficiaries when they pass away. So they're pretty much taking large, large sums of cash and almost doubling it on the tax free side. Now if something happened to them, they passed away and they had $500,000 in the bank account, it would go through their will and depending on the state and you know, estate tax, all that whole system of taxation.

Probably.

Exactly, yeah. So with the whole life policy they would skip that and it'd be on the tax favorite side. And then also they wouldn't be locking, they wouldn't just be buying life insurance, they would be taking $500,000 transferring into a policy and they would have liquidity in their policy too that they could access in the meantime.

So you mentioned single premium. So basically if I've got half a million dollars and I just want to pay it one time, lump sum, and I'm like, here you go. That's not even paid over time, you can actually do that. You can put the whole thing in lump sum right away without having monthly yearly premiums or no.

Yes, correct. Yeah, it would just be a single premium whole life policy, and then it'd be paid up so no more premiums would be required.

Okay, cool. So one of the things I know about insurance policies, whole life especially, is that, you know, there are fees to this. And typically the fees are large in the first few years. And you don't necessarily have, you know, I know that, you know, if you put in $10,000 this year, your cash value, you can't pull out 10,000. Right. It'll take several. And we'll cover this in more detail. It'll take several years to be able to access all of the money you put in due to fees and costs. And I want to go back to the normal use of this. But in the single premium, if somebody put in half a million dollars, approximately.

How much access to their, I guess that 500,000 would they have in year one. And then how long would it take them to have access to the full 500,000 should they need it? Yes, on an average.

So it depends on their age. But let's just say, for example, let's.

Say they're 70, like 70 years old, for instance.

Yeah, 70. They put in 500,000. Their cash value, year one might be 480. That's their cash value. And then they could borrow up to 90% of 480. And then every year, their cash value and then their life insurance might be like $850,000. But the cash value and the life insurance would grow every year. And probably with. Depending on how it's structured, depending, maybe like year two and a half to year three, it would break even, meaning the cash value would go from 480 and it would exceed 500,000 by year two and a half to year three. And the life insurance would grow about 5% every year. So.

It'S not level. It would keep growing every year after that. The death benefit.

Right. Okay, great. Yeah. So that is a good way to.

Make my mom and dad listen to this afterwards. Hey, guys, listen. No, but that's great. So I'm just going to reiterate that if you put in like fully paid up, here's half a million dollars, that's going to get me a death benefit of about 800 to 900, you say, right?

Correct. Yes.

And I would have immediate access to about 480. But then after about maybe, let's say on year three, we're going to reach parody, where, okay, I got access to the full 500,000. I never have to spend, put another dime into the policy because it's paid up, but it's gonna continue to earn money, right?

Yeah. And then as you, let's say you, for example, borrow a hundred thousand from it and then you want to use it for, you know, whatever real estate or invest in a business, you could pay that back on your own time. You could pay that back over 15 years if you wanted to.

You know, love it, love it. So now if, let's, let's talk about.

Let me ask about. Yeah. So what do these policies typically pay? What is the interest rate? Are they market determined? Are they variable or fixed?

They're typically, they're kind of. So when we do an illustration for a client, right, we pick the company, we pick the funding amounts. There is something called the illustration that's like the figures all printed out. And there's a guaranteed side and there's a non guaranteed side. On the guaranteed side, the insurance company is saying, for example, if you're funding this for 20 years, they're saying for 20 years, this is your cash value, this is the premiums you put in, and this is the growth of it, guaranteed in writing. And then you're of course guaranteeing this with an insurance company that's been around for over 100 years. And then on the non guaranteed side, it's the guarantees plus dividends, although dividends are not guaranteed. We only work with companies who have been paying dividends for many years, for over 100 years. So pretty much non guaranteed equals dividends plus the guarantees. And typically combined together all the interest and the dividends over time on average from the companies we work with, we see typically between 5 and 6% compounded every year.

Okay, great. And that does that.

How much of that is typically dividend versus guarantee?

Good question. Maybe about 3% guaranteed interest and the rest of it is dividend. But it has a compounding effect. So they base the interest on how much dividends you get and then vice versa. The amount of dividends you get is based off how much interest you're earning. So it's like a cycle. And this is where it comes in the paid up additions rider. This is part of properly structuring a policy. We want the paid up additions rider, which is a part that goes into the policy and it allows you to add more cash value directly, add more premiums directly into the cash value. And when you do that, it has a compounding effect. So you're getting interest on interest over and over again throughout the year.

And I've read about the PUA rider but I never really totally understood it. What is that? What are the more technicals of it that it's telling the policy to do so.

Yeah, so for example, you know, old school whole life insurance would be, you know, 100% whole life insurance. That means every dollar that's going into it is going to service the life insurance part and a small amount is going towards the cash value. This is where people say, you know, whole life insurance is a terrible investment or a table terrible strategy. And it could be, if it's 100% base it could be a terrible strategy. And as you're putting in dollars every dollar it's going to service the whole life. But when we do it the bank on yourself way or the infinite banking way, we're doing a different allocation. We're probably doing like a 50, 50 split where every dollar that's going into it, half of it is going towards the base life insurance and the other half is going towards the paid up additions rider. So this way we reduce the life insurance amount and then we allocate more dollars to the cash value. This way you have much higher cash value in the first year. So like old school whole life insurance policies you would be putting in $10,000 a year, maybe year 11 or year 12, you would break even on a whole like old school whole life. The more modern way, the infinite banking way. Maybe year three or year four you'll break even on putting in $10,000 a year depending on the policy and how it's structured and the age, you know. But typically it's a much higher rate of return when you.

Because it's less focused on the, it's really less focused on the dividend than it is. I'm sorry, it's less focused on the death benefit because the death benefit is important but what's really important is, is generating a large enough cash value to. Okay, gotcha. Perfect. That, that answ.

The average person who non senior citizen, right whether you're 25 or 45 or whatever, right in that range and you are, you're just you know, paying obviously the amount of premium probably depends, I'm guessing on do you start off with the death benefit? Like if I wanted to do this right now.

What are some of the things that you would ask to say okay, you know, to determine how much right. Like is it how much do you want to be paying per month or is it how much do you want the death benefit to be or what kind of is the initial determining amounts of how these things start off?

Yeah, that's an awesome question. Yeah. So what we would do is we do like a financial analysis. It takes about 60 to 90 minutes to do. And it's pretty much just me asking questions, you know, like, what is your cash flow? What are you currently doing for retirement accounts, you know, income, real estate, properties, passive income, all these things. We do do the math on it. And then pretty much like I would ask you, what are some of your goals? And if you say, you know, I want to retire at the age of, you know, 55 or whatever and I want, you know, $10,000 a year, you know, then I would structure a whole life policy that would help connect all those these goals together alongside everything else you're doing. And then we would pretty much fund it from there. So that way the solution could equal the objective of what you want to do.

Gotcha.

That's one way. Yeah.

Okay. Now and then if you're doing this, if it's not a single premium pay up like we talked about with just a second ago, and somebody is putting in, I'm just gonna, I'm gonna throw a number out there, like they're putting in $10,000 a year, which is whatever, like eight, what is that? About 800 and something dollars a month? You know, let's just say that's probably a healthy policy there. Approximately how long would it take? I think you said it's about three years. Is it about three years to get to for the cash value to reach the amount of premiums you've paid?

Yes, correct.

And then one of the things, I don't know if we actually discussed this, but one of the nice parts about this is you're not paying premiums forever. There is a certain point where you can actually stop paying premiums altogether.

Right.

And it just is self funded.

Exactly. Yeah. We do that based off of retirement goals or based off of their goals. So if they say let's do 10 years, you know, of putting in $10,000 a year, we could do that. We could do seven years. We could do, however, and we kind of run like, we run this alongside other things. Like for example, if they're going to retire from their job at age 55, we'll do it. So that way they use their W2 income to pay for the premiums until they retire. And that way then we could turn on income. So that way the policy is always paying them. There's going to be gains. Another thing too, back to the taxes. In most situations, about 90% of situations, it's going to grow tax deferred. And then when you take that money out, it's going to be tax free because you've used after tax dollars to fund the policy. And this is how policies are structured under current tax law, when you take the money out, even if there are gains. So it's very common for us to set up a policy where they're putting in $10,000 a year for 20 years and then they turn it on. So now they're going to get $25,000 a year for the next 20 years. So their money is like 2.5 to 3 times what they put on a tax favored basis. It's really important for people to understand is that if you're just chasing 8%, 10% returns wherever else, you need to understand the tax liability behind it.

Absolutely. And then is there ever really a point where you're accessing the cash without, you're never really accessing the cash value without taking a loan. Correct. It's always kind of done as a loan. It's not just like a dividend or something that just gets paid out.

Yeah. So a couple of things. So one is when you what whatever the cash value is in the policy, there's two ways to access. There's, you could borrow and then pay the interest like we already mentioned, or you could withdraw it where you take away from the actual principal. Typically it depends on the client. It depends on the back of the financial analysis. But typically I think one rule is while you're, while you're still working, while you're still earning income, you don't want to do any withdrawals, you don't want to affect that growth. And then when you retire, that's when you want to do withdrawals, you want to turn it on. So that way the policy is now subtracting from the balance, paying you out as like a pension or as like a retirement account that's paying you through right now.

And that's if you're using, if you're withdrawing for just living expenses. But if you're withdrawing in order to put it into something that also makes money. Right. Like let's say you're withdrawing to buy an investment property that may pay 8 to 10% and you'll pay yourself back at. We'll talk about that in a second, then it makes sense to borrow. Right. If you're, if you're taking the money out to put it into a cash flowing asset, borrow it. If you're just, hey, I'm retired, I'm done. I'm not Making any income to start to pay this back, I'm just going to start to withdraw it now. Are the withdrawals taxable?

So if the policy is something called a non mec policy, non modified endowment contract, then it would be tax free. So even if there are gains in the policy, it would be tax free. And assuming you've used after tax dollars to fund the policy. Yes. And that's typically what we do sometimes about 10% of the time. We do intentionally do modified endowment contracts where they do have to pay taxes on the gains in the policy that they take out because of the other financial benefits, you know, the death benefit, the tax deferred growth and the liquidity, all the other factors. The client is on board with those and they rather have those factors. You know, considering the tax liability with.

This, I love it. And like what is the. When you're paying back, when you're paying yourself back the loan, which is one of the most critical elements of this whole thing because it, it's not only oh just well, you have to pay it back because you really don't, but it's what allows you to like get this really super compounding return. Right. Because if you're, if your policy is making. What'd you say, let's just say 5%. So you get $100,000 in there, you're making 5% on that and then you withdraw money and you put it in something that's making 10%. Right. But then you pay yourself back.

An extra 5%. It's like you're just continuously feeding the beast and you're getting really a magnified return. What would you recommend in this market environment right now? If I borrowed money and paid it back, what percentage rate should I use to pay myself back?

Yeah. So typically now I've heard of other advisors do it where they can control the amount of the interest you pay back. Now I actually, to be transparent, I've never seen this before where you can control the amount of interest you pay back directly to the insurance company. So for example, if you have a hundred thousand in the, in the account and then you borrow, you know, 50,000, now you're taking out of the insurance company's general funds. And then now it's like a personal loan between you and the insurance company and you would typically pay back 5% simple interest while you're earning.

So the insurance company is the one who determines the rate because I may have been mistaken. I thought you could pay it back without. I thought that you could a not pay it back, which just Robs from you. B, that it.

Or B, that you could decide what rate to pay. But that they said, I thought I read that you should pay a market rate, but you're telling me that it's typically a set rate, is that right?

So, yeah. So typically when you're paying it to the insurance company, they determine the interest rate, which is typically 5% simple interest, and you're paying it to them. And then you get to control how and when you pay it. So you could do monthly payments, annual payments. You could, you know, you could pay it back in one year or 10 years. You could pay it back. And we recommend that you at least feed it back so that way you're paying down the loan balance. Yeah, but now this is kind of like the next step to this is that this is almost like, you know, martial arts, where there's like a white belt and then all the way to, like a black belt. So, like, people start off doing on a basic level and then they can get really, like, intricate and do like, a lot of interesting things. So more on the black belt strategy. It's like, for example, I'm an individual. I own an llc. The LLC is going to borrow from my policy. I'm going to pay the insurance company back 5% simple interest, but I'm also loaning the money out to a separate entity. I'm going to add an additional 5% interest on top of that. An agreement between me and my LLC or S Corp, or C Corp. This is something that you want to confirm with your CPA and your lawyer to make sure this is all going to work and all the parts are moving. But pretty much you're becoming literally your own finance company and you're using the insurance company, the whole life insurance policy in between all of this.

Nice. I like that. Okay, but. And that's nice, too, is that, like, the how and when you pay it back is kind of up to you because. Yeah, if you're having a. If you're having a off month or something like that. And if you like, if I, if I'm typically, if I set the schedule to pay it back monthly, I can skip a month if I need, right?

Yes. Okay, cool.

Is there any penalty to that?

No, no penalties.

Interesting. If I decide, screw it, I'm not paying it back, what happened? Does that just come out of my death benefit?

Yeah, yeah, that could happen. Or in some situations, and I haven't seen this, but you know, just to be cautious of it, is that if you don't pay back at all, the Loan balance would eventually just keep growing. And then if the loan balance grows beyond the cash value, then the policy could lapse. Now, granted, that would take a really long time because as you borrow, you're still earning money on your money on your cash value. So it's just something to know that you want to pay it back to avoid the policy lapsing in coverage.

Perfect.

One of the things that I had read about, and I don't know if you've heard this analogy, but I really loved. And it made sense because I've tried to explain this concept to a few other people. Um, and, you know. Well, and one of the problems as well. Well, you know, the fee that the insurance company fees are so high, like, you know, it doesn't even break even for what, like three years sometimes, you know, plus or minus, I guess. And I loved seeing it. This analogy is like, well, what if you were to actually start a bank? Like you were to actually go capital, like start a bank, You've got to capitalize it. You've got to buy the real estate, furniture, fixtures, equipment, hire employees. You've got startup expenses to starting this business.

Right.

And most businesses don't break even for a few years.

But once they do, then they're off to the races. And they said they use this metaphor of think of it like that. Think of it as you are starting the bank of Brad and you have to capitalize it. You got to take maybe one step back to take two steps forward. The good news is you still have access to your cash, but it's just not all of it. You mentioned on the lump sum, if I put in 500.

I probably got access to 480. If I start putting in, let's say.

Let's just say, let's make it easy. 12,000 a year, $1,000 a month. After year one, I've put in 12,000. If you were to ballpark how much access I would have after year one, what would you say that would be?

Cash value about 50%. Six grand? Yeah.

So. So putting in the lump sum actually is more beneficial if you can do that, right?

Yeah.

Okay, cool. So first year, if I put in 12,000, I may have access to 6,000. Second year, I put in another 12,000. Now I've got 24 in. Is it probably more than 50%?

Yeah, now it's more. Now it's starting to climb now. So the year one, technically your cash value went from zero or 6,000. And then year two, it's probably going to increase by 7,000, 7,500. And then year three, maybe three and a half, it's gonna start breaking even. So eventually the cash value of the policy picks up and just starts generating its own income, almost its own returns in that policy to exceed what you're putting into it. So it's very common by year 10, you're putting in 12,000, but the policy now is growing by 18,000 or 19,000. And then even in some situations where let's say somebody is, you know, 40 years old, they do it for 10 years, they cut off payments, not 50, but they don't take any money out. They want to just let it sit there. Every year after that, from age 50 till age 60, it's going to keep earning interest and dividends and compounding as if they're paying for the premiums, but they're not anymore. So it can keep compounding it over and over again every year.

No, I love that.

And yeah, like you said, after just a handful of years, it breaks even and then you're good to go. If you start off paying 12,000 a year, right. And based upon whatever analysis you do, you say, okay, you're probably going to be paying for, I don't know, what do you think? Like it's 10 years, is that long? Is that short before.

Yeah, depending on what the client wants to do. Because eventually. Here's the thing though, when you, when you do like the, it's called reduce paid up, that's when you pretty much stop paying into the policy. When you do that, it's good, right, because you don't have any more premiums to go into it, no more expenses. But it's all at the same time. There's a downside because you can't keep building up the cash value even more and more. So it's like a game of interest. You know, we want to reduce expenses, but at the same time we don't want to reduce opportunity. And this is, you know, that makes sense.

Okay, that makes sense. And then like, let's say we had a plan and the plan was to pay it for 10 years, okay. And at that point it's going to take over. But on year five, I was like, you know, I just don't want to pay into this anymore. Do, as a client, do you have the opportunity to stop? And then it just reduces the amount of the cash value in the death benefit or do you have to keep on paying it or lose something?

Yeah, good question. So remember how we talked about the paid up additions rider? So the part of the paid up additions rider Another benefit of it is that it's flexible. There's a lot of flexibility. So for example, if we're doing $12,000 a year and we did a 50, 50 split between base premium and paid up additions rider, then every year you're on the hook for 6,000 for the base premium. You have to pay that. And then as far as a paid up additions rider, there's a minimum and a maximum you get to allocate to every year. So the minimum is like 100 bucks a year. The maximum is usually depending on how much the base is, it's pretty much maybe, let's just say $10,000 a year. So every year you could do a minimum of $100 to a maximum of 10,000 towards the rider every year. So this means you can overfund the policy and underfund the policy every year you want to. So if you're five in and it's getting too expensive, you could drop down to the base and then only pay the base premium and then pay the minimum on the rider of $100 a year and you could even borrow from the previous years to pay future premiums.

That's great. So, yeah, so there's no real, it sounds like it's flexible enough. There's no major risks, but obviously everything has a risk. What would you say some of the bigger or their actual risks that somebody needs to pay attention to besides opportunity costs and opportunity risk of, oh, well, you could do this with that money. But what are some of the risks there?

Yeah, it's pretty much just the control of cash flow. So if you, you know, allocated, you know, to put in $12,000 a year and then, you know, you lose your job or you lose your source of income. That could be a risk, of course, because yeah, the policy can have flexibility, but eventually you have to come up with that capital to keep it moving, to keep it. The insurance company is making a commitment for you and then vice versa, you're making it a commitment to the insurance company. Right.

Okay, well, and that's not a $12,000 a year, granted. I mean, that's not a huge leap. And what you mentioned though is if something happens, I put in $12,000 year one and year two, I lose my job, somebody stole all my money, and I am just back to square one and scraping. Um, at that point, let's just say it's in year two or three, at that point I'm in a oh, crap situation. Is that where I can pay that minimum?

Yeah, yeah, you could even pay the minimum. And then use the previous year to pay the base finance, the base premium. So if you have 6,000, you can take the 6,000 out, use that for the next year to pay the base premium. That way it'll buy you an extra year until you get situated. And there's also something called a catch up period. So let's say year one, you put 12,000 in. Year two, you put 6,000 in. Year three, you put 6,000 in. And then year four, you pay that original 12,000, plus you have an extra 12,000, you can go back the previous two years and then fill in those buckets, those missing buckets, to catch up the cash value. So that way you're on track. Back on track.

Nice. And I know several people have gotten multiple of these accounts. So you don't just have to have one policy. Right. Like one of my buddies that started one of these about eight years ago, he says, yeah, I've got four policies because he's got two kids, got a wife. So when it comes to starting multiple policies.

What is either a benefit of that or what are some of the basic stipulations that you need to know if you're doing multiple of these?

Yeah, well, it's like how you mentioned about having a business and there's expenses, it's just having more than one business now. And there's a reason why people get more than one policy. It's because of that whole modified endowment contract thing mentioned earlier, is that the IRS limits you based on how much cash you could put in, based on how much life insurance you have. So when you reach that max, and then now two or three years have passed by, you want to do another one, you want to allocate more dollars to it, you're going to max out the policy, then you could do a second policy, third and a fourth and so on. So this way you're able to allocate as much capital as possible into this tax deferred, tax free, safe place to grow your capital. So that's the reason why a lot of people do more of these policies.

Okay. Yeah. And in order to have another one, you just basically have to pick a beneficiary, right?

Yeah, the beneficiary. So, for example, if it's two spouses, it could always be the same spouse as a beneficiary or kids or parents or.

So like, I could take one out on my spouse, she could take one out on me, and then if we had two kids, we could each take one out on each kid. Right. So then that would be like 1, 2, 3, 4. I could technically, like family of four could maybe have six policies.

Yeah, exactly. And then we do have it for kids where it's like a college savings plan, you know, where they'll put, they're putting in, you know, you know, $300 a month and by the time they're 18 or 19 years old, they'll have enough money to start financing their college education.

Is this, the kids are putting like the kids are taking the policies out at that age. So the parents are doing it for their kids.

The parents are doing it for their kids. So look, let's say it's a, you know, two year old. The parents would own the policy in the two year pay for obviously, and then pay for it for 20 years or 18 years. And then in a lot of states, you know, like, for example, like a 529 college savings plan, there's a lot of restrictions behind it. You know, you have to use it for college. You know, there's some tax advantages, but with the whole life policy, there's no restrictions. So if you did save for their college and then now, you know, they're 18, 24 years old, they have 100 grand in there, they don't have to spend that money on college if they don't want to go to college. You know, what if they want to be entrepreneurs that young, you could use that to finance their, you know, their business or whatever it is that they want to do when they reach that age. So it's a very powerful strategy also for kids.

I love that. And now. Yeah. Is there a point at which.

So for instance, if I have actually my wife and I don't have children, but if we did may go adopt one just so I can do this. But let's say we did and we.

We did this for them and let's say they're 10 years old and then in 10 years they're going to be basically like, you know, 20 years old, out of college or whatever. Is there ever a point at where.

This policy can be transferred to them and then they could access the cash, et cetera, as opposed to me, if that's one, if I wanted to do that. Or is it still really my policy and they're like, dad, give me the cash?

Yeah, yeah, of course you could do that. You can gift it to them. You would change the owner from you to them and yeah, absolutely, you could do that. And then, and then what's cool is we set up policies for kids where they only pay for 20 years and after paying it for 20 years, for the rest of their lives they'll earn interest and dividends on that money. So we've done cases where you know, putting in, you know, $300 a month for 20 years. By the time the child is in their 60s, their money grew by 20 times what they put into on a tax, what the parents put into it on a tax deferred basis and a tax free basis. Actually, you know, I love it.

Yeah, that's really interesting.

This is what the 1% do. They just have large billions of dollars in whole life insurance policies and they just pass these on generation to generation. They finance their own education, they finance their businesses, they lend money out to other people, charge them interest on it and they just keep the cycle of cash moving within the family. No banks allowed. Not Wall street is involved, just the families involved only.

Absolutely.

You mentioned something about this before and I can't remember if I misunderstood you. Is there a way to put pre tax income into these?

Yeah, yeah, with business policies you could do that. So for example, you could do it where like you have an employee and this employee, you don't want to lose him or her, you want to retain them. You could use pre tax dollars to fund it. But of course, either you're taxed on the beginning putting the dollars in or you're taxed on taking the money out. But yeah, to answer your question, you could do with pre tax dollars.

Yeah, so, but, and I would only be taxed on the withdrawals. I could still borrow against that policy tax free.

Yep, exactly. Smart.

And then what if that employee were to leave my company?

So you would keep the policy and you can keep insuring them too as long as they work for you for two weeks. That's all.

You can technically just hire somebody for two weeks. So you could take a policy out on them and then just go, look, when I die you're going to be a happy person. But yeah, Walmart. Also, you probably don't want to take out policies on people who are kind of strangers. Yeah, it's got reasons for accidental, you know, somebody to run you over in a crosswalk.

Yeah, there's, there's, there are forms that go into and you have to kind of like elaborate on. Like this person has skills that are hard to replace and like you have a relationship with this employee. Like, like there has to be like.

Insurance so they don't just let you literally go put an ad on Craigslist and say take a policy out on this fellow.

Right, exactly. Yeah.

Needs to be a reason that's good man. Sari, this has been really, really informative. I'm glad I've had you on the show. This kind of brings us to the top of the hour here. But.

You'Ve been a wealth of knowledge and I'm hoping that some people are like, I really want to explore this some more. So what are some of the best ways, like do you offer consultations or whatnot for. For folks like, how would they work with you if they want to go down this path?

Yes. So they can go to our website. It's fin asset protection.com f I n asset protection.com and there's a link. You can schedule a free appointment and if you reach out to, I'll send you a free copy of a book called Becoming your own banker by Nelson Nash. It's a really good book and it's kind of the intro to all of this. It's details. Yeah, I'll send you a free copy of that book if you reach out for a free consultation.

Fantastic. And then at Fin Asset Protection, is this pretty much all you do or do you offer other types of services as well? Or is this.

Yeah, this is what I do full time. The bank on yourself strategy, whole life insurance, savings plans. This is what I do full time. I love it.

I love it. Well, thank you very much. And the best way to reach out isfinasset protection.com right? There's a link on there to schedule.

Yes. Cool.

So folks, if you've been listening to this, hopefully your eyes have been opened or if you've heard about this before like I have in the past, hopefully you've gotten been able to plug some of the gaps and go, okay, now that kind of makes sense. It is one of those strategies. When I heard about it and even having a financial background, there was a few. That sounds too good to be true. But.

You know, the more you look into it, the more you see it's not. It is just one of those really good strategies that people have been using for years and years that can give you a leg up. And never just because you don't understand something in the very beginning, don't let that, don't hesitate to let that make you go and explore and really fill in the gaps. Reminds me of about three and a half years ago I did this with bitcoin. I threw about five grand in Bitcoin and May of 2017, but at the same time I still didn't go learn a lot about it and it went up and it went down, et cetera. And then this year came along, it was about six months ago, and I finally, luckily decided to say, look, this is an amazing asset class, but I don't know enough about it. So I started to not only invest in it, but to go deep and learn and learn and learn until it all made sense. And things like as of right now, February of 2021, I'm pretty darn happy I did that. This is one of those things I wish I would have taken a closer look at back then and say, I don't totally understand it, but damn it, I'm going to figure it out because this can. This can change lives. So do not hesitate to go to finassetprotection.com, schedule a consultation with Sari, and see if this is something that would be useful to you. Otherwise, you may be coming across this 10 years from now going, man, I wish I would have listened to Brad and Sari on the show. Speaking of listening to me, if you're listening on one of the ipod or I'm sorry, I don't even think ipods exist anymore. One of the podcast apps hit the subscribe button because I got a lot of more really great episodles coming out and really look forward to sharing them with you. Sarah, thanks a lot for your time, my man, and I appreciate you sharing what you do.

Thank you so much, Brad, for having me on. I appreciate it.

All right, and see you guys on the next episode.