“There are three steps in the revelation of any truth: in the first it is ridiculed; in the second resisted; in the third, it is considered self-evident.” – Arthur Schopenhauer, German Philosopher
Do you have access to your money on demand? Or are you locking up your assets? The answer may be influencing your wealth much more than you realize.
Most investors concentrate on the “rate of return” on an investment or savings vehicle. However, locking up money in investments where it is no longer liquid can severely minimize the possibilities for highly profitable returns. This is because a number of the best opportunities cannot be taken advantage of without easy access to cash.
1) To provide with capital.
2) To gain advantage from.
1) The quality of being readily convertible into cash.
2) Available cash or the capacity to obtain it on demand.
Most typical accumulation vehicles put your dollars into a straitjacket.
- If you put money into a retirement plan, your money sits there, sometimes for decades.
- If you save in an educational savings plan, that’s where your money remains until needed for tuition.
- If you invest in a business or real estate deal, your cash is tied up there for a certain length of time, or up until the investment is liquidated.
- If you buy a car with your dollars, your money is now on four wheels in a depreciating asset.
Usually, you need to liquidate assets or rob yourself, in order to get access to use your dollars somewhere else. It’s “either/or”– you can either earn interest on your savings, earn returns on your investments, OR get rid of them to spend your money, but you’ve got to make a choice.
Cash Value Life Insurance: The Both/And Asset
Todd Langford, Owner and Founder of Truth Concepts financial software has stated, “Most assets are either/or assets, but (whole) life insurance is a both/and asset.” This is a perfect way to point out the advantage of having an asset that can be easily utilized as collateral; similar to real estate for example.
Cash value life insurance is a “both/and” asset (even more so if it’s designed to build cash faster). As you keep funding your life insurance policy, the cash value grows exponentially, and before you know it; there are options available. Do you need money for an emergency? A money-making opportunity? What about a vacation, a business start-up, or a down payment for a rental property? It’s there.
Though you can simply withdraw the cash from your policy (using it as an “either/or” asset like other financial vehicles), you can also keep the cash value IN your policy – earning future interest and dividends – and borrow against it (either from a bank or the insurance company – you have collateral assignment). By having access to money via policy loans, life insurance ends up being a “both/and” asset.
Your savings continue to grow and earn compound interest while you gain access to the cash you need for an emergency expenditure, an investment, or a major purchase. Then, you can repay the loan on your specific time schedule. You can make extra payments or a lump sum payment. If you need to skip a few payments, that can be done as well. (However, I do recommend that you pay your loan back diligently, like you would to any lender, as that will minimize interest and will give you access to borrow against the cash value again, should you want to.).
Financial author and speaker Nelson Nash has stated:
If you have cash, opportunity will seek you out!
Here are 5 examples of how opportunities can find you when you have access to obtainable capital:.
1. Cash in on an Opportunity
Say someone you know wants to sell a classic car for a lot less than what it’s truly worth in order to generate some quick revenue. The car can be sold for $30,000 by a patient seller in the right market, but he’ll take $20,000 if you can get him the cash next week. Let’s say you buy the car at $20k and resell it for only $27k. You borrow the $20k against your cash value, pay 6 months of interest at an 8% annual interest rate (an additional $785), and you sell it for $27k.
You’ve just generated a $6,215 profit, or an annualized return of 68.74%.
2. Be the Bank
Maybe your business is in need of some new equipment, and you learn that the lease on the new machines will cost you the equivalent of a three-year loan at 21% annual interest rate! And even worse, if you prepay the lease, you will STILL pay the usury financing fee.
You might save thousands by having the ability to supply your own financing in such a scenario … all just because you had access to cash. In the example below, a $20,000 loan (or lease equivalent) at 21% interest will cost $27,126, while an 8% interest loan over the same time period, only $22,562:
3. Earn Cash Flow
Let’s say you have a business opportunity, where you could offer to finance equipment for someone else at a rate of 12%. You could borrow cash at 8% from a policy loan (no questions asked) and earn the 12%.
You ‘d be making 50% on your money, while saving them thousands when compared to a higher interest rate like the one used in the previous example.
Don’t mistake this strategy as a mere 4% gain – 4% being the “spread” between the cost of money at 8% and the rate at which you can lend the money, or 12%. If you bought a widget at $8 and sold it for $12, it would be a 50% profit. It is the exact same when buying and selling cash.
4. Create an Income Stream
Whenever you have access to cash, you can take advantage of money making opportunities that come about, which you normally would not be able to; this in effect, allows you to make better investment decisions and less worried about chasing higher returns which increases the chance of loss.
For example, one investor used his cash value savings to invest in cash flowing commercial real estate which created an income for him after he became disabled and forced into an early retirement. Fortunately, he had a disability rider, which kept his policy funded, now at no cost to him. But he even took it a step further and profited from his life insurance policy. Using policy loans and the leverage of a mortgage, he was able to fund multiple real estate deals which enabled him to continuously support his family.
5. Take the Trip of a Lifetime
Sometimes, the “return on investment” isn’t financial at all, it’s purely personal.
Network marketer and businessperson Jordan Adler had always wanted to “go to space.” When Jordan got an opportunity to actually book a spot on a commercial space flight (with a six figure price tag), he said “Yes”. He knew he could access the money with a policy loan, no questions asked, and repay it at his own timing, without disrupting his other investments.
The Cost of Cashing Out of Your Retirement Plan
Most people consider their 401(k)s or IRAs to be their “savings.” But qualified retirement plans aren’t liquid and make a poor warehouse for your money. You’ll pay penalties and income tax, which can demolish nearly half of any withdrawals. In 2010, Americans paid $5.8 billion in penalties alone by tapping into $58 billion in retirement funds before they were supposed to, according to a 2014 Bloomberg article.
Borrowing 401(k) monies for allowable reasons (including a home down payment) is also deceptively expensive due to the tax treatment. You’ll have to replace the before-tax contributions with after-tax dollars, which means you can add your tax bracket rate onto the cost of the loan.
If your money is locked up in typical assets, you have no liquidity.
Capitalizing with Cash Value Insurance
When you have a solid, liquid asset like life insurance cash value, you can leave that asset intact, and easily borrow against it. This leaves you with your original savings plus access to cash for a vacation, your child’s tuition, an unexpected payment, or the investment that will pay healthy returns. Better yet, your savings will continue growing, off-setting a portion of the interest costs. (You may also have the opportunity to use your policy cash value to obtain a bank loan at an even lower interest rate, and a stricter payment schedule if that is something you need).
You can argue that a cd could give you the same liquidity– besides, what bank won’t lend against their own certificate of deposit? However, here again, we discover that whole life insurance is a “both/and” asset in the manner in which other savings vehicles are not. Also, with cd’s you are paying taxes at your current tax bracket which inhibits the nature of compounding interest.
Typically, you will have to choose between investments, savings, or insurance vehicles. With whole life insurance however, you are saving and insuring all at the same time. Not only will you eventually have access to every dollar put into the policy as your cash value grows, you’ll also have protection over and above the cash value the moment your first premium is paid.
Hence, life insurance is a self-completing savings strategy. Should something happen to you, the policy can still pay for your child’s tuition or supplement your spouse’s future income. In his book Economics of Life Insurance, Author Solomon S. Huebner writes:
In comparison with competing methods of saving, life insurance holds a unique position. For system, convenience, and semi-compulsory effect, no other plan of saving excels the life insurance method. Its special virtue is that it can be used to spread the savings period conveniently over the whole of the working period of life. Unlike other methods of saving, it constitutes complete service within itself by judiciously combining saving on a convenient installment plan with permanent protection of the potential estate.
Can You Capitalize on Opportunities?
Cash Value life insurance is the most efficient place I know to store long-term dollars (with a permanent self-completing savings mechanism) and the best way to build liquidity for future investments, emergencies, and opportunities.
Prepare yourself for success with greater liquidity in your personal economy. Let me run an illustration for you to show you how a whole life policy can grow cash value that can be used as collateral when you need capital. Fill out the Contact form today to discover more.
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