Banking from Yourself & Leveraging/Hedging Stocks

“Whenever you find yourself on the side of the majority, it is time to pause and reflect” -Mark Twain

This page is still under construction…

In 2016, I learned this little known financial hack utilized by the smart money.

By being your own bank and using the Infinite Banking Concept you can create a dividend-paying whole life insurance. Its called life insurance but its just a tax code loophole to make a tax free yield in an account that is sheltered from lawsuits and creditors.

Add this to the list of things your typical financial advisor or life insurance sales guys just does not get… likely because they are still working for a paycheck and it actually decreases their commissions.

“Infinite banking” is just one term for this. The magic of the infinite banking concept is to create tax free “wash loans”. Where the dividend rate on the cash value is equal or greater than the interest rate on the loan and maximizing the use of Paid Up Additions, which have a lower commission rate than the regular policy – this is why most FPs don’t like this.

And for you high-net-worth folks still dabbling in paper assets, you won’t want to miss this other trick that I will reveal on there too.

I think starting a small policy with 25% of your household’s annual cashflow is a good idea to start today… even if for the asset protection the policy provides (even in bankruptcy).About half the states protect the whole life insurance policies payable to spouse or children with partial protection in all states. Plus these assets do not appear on your kids FAFSA. So if you are like me and want to load your kids up with student debt (to get a BA in pottery or psychology) and ensure your golden retirement for numrouno (you) this is a good strategy.

For a warm intro to the guys I recommend email me at Lane@SimplePassiveCashflow.com

Wealth Formula Banking w/ Lane Kawaoka Outline

 Downloadable excel example

  1. Purpose statement: Wealth Formula Banking is how cash flow investors enhance the investing they already are or will be doing
  2. Vehicle:
    1. Net 5–6% Return
    2. Tax-Free
    3. Safe / Predictable
    4. Liquid
    5. Loan Provision
    6. Death Benefit / LTC
  3. Strategy:
    1. Same dollar creates value in 2 ways
      1. Simple vs. compound
    2. Replace the bank
      1. Opportunity fund
      2. Safety
  • Liquidity
  1. Higher return
  1. Real life example: WFB vs. Bank

 

Next up is this method of hedging yourself to a 0% loss. So if the stock market goes down 10-20% in one year you lost 0% 😁

Unfortunately, by taking this type of deal (that the rich do) you cap your upside at 12%. So if the market goes up 14% you only get 12%.

Here is where the strategy comes together… We leverage your investment by using 3X leverage. So if the market goes up 7% you get 21%. In that case, where the market goes up 14% you only get 12% you actually get 36%.

I know it sounds crazy. It’s like bowling with the bumper rails in place.

 

 

Velocity Plus w/ Lane Kawaoka Webinar Outline

  1. Purpose
    1. Leverage
    2. Max income w/ least dollars
    3. Alternative for retirement plans
    4. Great for groups
  2. Concept Structure
    1. Leverage
      1. $100k for 1 property?
      2. No. $100k for 4 properties
  • Do the work of $400k
  1. Years 1-5: Policyholder and bank contribute
  2. Years 6-10: bank only
  3. Ratio: 25% policyholder, 75% bank
  4. No collateral needed beyond policy
  1. Product: Indexed Universal Life
    1. Use an index
      1. Cap
      2. Floor
    2. Capture 80% of upside
    3. No downside
    4. Policy structure: max cash growth/min costs
  2. A Look at the Numbers
    1. 46-yr-old
    2. $1M total going in
      1. $50k from policyholder / $50k from bank
      2. Then bank takes over total
    3. @ year 15—pay off bank loan
    4. Age 65-90—tax-free income of $115k/yr
    5. $250k goes in, total of $3M comes out!
  3. How it Works—Leverage Throughout
    1. Spread—growth vs. loan interest
    2. Leverage the bank for 15 years
    3. Pay off bank loan using policy loan
  4. Leverage Throughout—A Snapshot
    1. Example numbers at year 15 after we pay off bank loan
    2. Figures:
      1. Total Cash Value: $1.8M
      2. Loan Balance: $1.2M
  • Net Cash Value: $600k
  1. Let’s say we get a 10% credit the next year:
    1. $180k (calculated from Total Cash Value)
    2. Loan grows by 5%–$60k
  • Growth in Net Cash Value–$120k
  1. That’s a 20% gain on our net equity
  1. Overall return is 18%!
  2. Estate planning
  1. 2 Primary Risks
    1. High Interest Rates
    2. Poor Performance
    3. “Stress Testing”
      1. 80’s interest rates–$98k/yr income
      2. Great Depression–$78k/yr income
    4. Baseline income was $115k/yr

Past resources:

SPC028 – Chris Myles explains the downside to using Helocs to pay off mortgages & a teaser on life insurance

Using Life Insurance to be your own bank

Podcast#31 – Hacking Life Insurance for Tax Free Double Dipping

We are not talking about your father’s whole life insurance

Whole life insurance is only one part of the above strategy. below is a discussion on my thoughts on the product as it stands alone.

First off, its a product which you pay for. The providers (insurance companies) are using the best minds and big data to price out your coverage premiums which include marketing, sales commission to your FP, and a wee bit of profit for their company.

In most cases, if you die while owning life insurance, you get paid the death benefit, tax-free because of the step-up in basis at death

Term life insurance gets really expensive after the term ends and as you get older (cause its price by the chance of you dying).

Whole life insurance is designed to pay out when you die so you can see how its sort of like a bank account. The way we are using this policy is taking loans against it.

Note – A Guaranteed Universal Life policy if a flat death benefit where the Whole Life grows.

These policies allow you to accrue interest on the amount of cash value that is not being “borrowed out” of (technically borrowed against) the policy. People in the industry call this “direct recognition.” Just be aware that “non-direct recognition” pay dividends as though no money was borrowed against the policy. Just something to ask when setting up your policy.

Downsides of the Whole Life product

You are front-loading your costs and fees. This can be devastating for someone in the early stages of wealth building. (Almost as bad idea as paying off low-interest student debt or mortgages before investing)

I like the ability to use this vehicle as a means to bank from yourself but keep in mind that you should not need insurance you don’t need.

I think you should ensure well against true financial catastrophes, and self-insure against everything else. Yet I ensure my iPhone because I am weird like that… actually, I justify it that I would search the world wasting my time for two weeks before going buying a new device. So insurance for a phone would save me time since I would not hesitate to give up looking and put in a claim.

Returns are typically low (when compared what we do in real estate investing). So just getting a policy alone and not implementing the “wash loans” does not make sense.

Most times the commisions are maximized by the FP. This can get complicated on how to design this stuff so its an ideal situation for a greedy FP to pull one on you. By maximizing the use of “paid up additions” while minimizing the amount of “regular policy” you can decrease the commissions and still execute this strategy.

Other pitfalls:

80%+ of whole life policies are surrendered prior to death because their beneficiaries need to money beforehand. Perhaps on an ALF (even though some policies have this benefit).

It’s slightly more expensive for older people and smokers to get ensured however I have found it to be negligible (1-3K difference on a 50k premium) between a 30-year-old non-smoker and a 50-year-old non-smoker.

Smaller policies like for your kids have much more fees because the setup fees fit into the policy. So buying a $20K policy for junior who does not smoke might not be the best idea.

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