“Success is where preparation and opportunity meet.”
– Bobby Unser, Indianapolis 500 Champion
Once upon a time. we saved in coffee cans and mattresses. Money was liquid and readily available! Then, we saved in bank accounts and CDs. Now, with the popularity of 401(k)s and IRAs, it has become normal to lock up your dollars for decades.
The goal of Wall Street (with help from its Congressional accomplices) is to keep control of your dollars… for as long as possible. Never mind “cash on demand.” Popular financial advice tells you to accumulate money in accounts you have little access to. Then just cross your fingers and hope it is there for you when you need it!
There are clearly upsides to growing investments without interruption. Withdrawals slow growth, plus there is an opportunity cost. But what are the downsides?
A big downside is that most people have little if any liquidity. In other words, their assets cannot be quickly turned into cash. Many people have an emergency fund but little else that can be accessed when desired. And liquidity is virtually synonymous with opportunity!
Capitalizing with cash and liquidity
Our friend, the late Nelson Nash (1931 to 2019) used to say: “If you have cash, opportunity will seek you out!” Author of Becoming Your Own Banker, Nelson understood well the importance of growing and controlling cash. Indeed, it’s the secret to capitalizing on your assets!
How much of your money is liquid? Do you have access to cash on demand?
Most investors focus on the ROI (return on investment) of an investment or a savings vehicle. However, without ready access to cash, you severely limit the possibilities for lucrative returns elsewhere. This is because some of the best opportunities require cash. This is what it means to capitalize!
1) To provide with capital.
2) To gain advantage from.
Accumulation vehicles lock up your dollars. Put money into a retirement plan; it stays there for decades. Save in an educational savings plan; that’s where your dollars remain until needed for tuition. Purchase a car with your dollars; your money is literally trapped in a depreciating vehicle. Invest in a business or real estate deal; your cash is locked up until a refinance or sale.
Todd Langford of Truth Concepts financial software (also Kim Butler’s husband) is fond of saying, “Most assets are “OR assets,” but whole life insurance in an “AND asset!” This is because You can use it for collateral, even while you are saving! (Kim even wrote a song about it!)
Usually, you have to liquidate assets or divest yourself in order to get access to use dollars elsewhere. It’s “either/or.” You can save or invest or spend, but you have to make a choice.
Whole life insurance, however, gives you a “both/and” option. As you fund your life insurance policy, cash value grows. Then, before you know it; you have options!
Do you need money for an emergency? You’ve got it. A lucrative opportunity? Yes, you can! What about a honeymoon, a business start-up, or a down payment on a rental property? Go right ahead.
While you can simply withdraw the cash from your policy (using it as an “or” asset), we highly recommend that you leave the cash value IN your policy and borrow against it. By using your policy as collateral for a loan, life insurance becomes an “AND” asset. (Read more about withdrawing from a policy versus borrowing against it here.)
Your cash value savings can grow and earn dividends while you access the cash you need for an emergency, investment, or major purchase. Then, you repay the loan on your own time schedule. Extra payments? Of course! Need to skip a couple of payments? No problem. (We do recommend that you be an “honest banker” and pay your loan back diligently to minimize interest costs.)
Current policy loan interest rates are between about 5% and 8%, annually, depending on which company your policy is with and whether it is a fixed or adjustable rate. But the specific terms of your policy aren’t as important as your ability to access cash when you need it!
Here are 5 examples of how liquidity creates opportunity when you have access to cash on demand:
1. Cash in on an Opportunity
Perhaps a friend wants to sell a classic car for much less than what it’s worth to generate some quick cash. The car can fetch $30k for a patient seller in the right market, but he’ll take $20k 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 sell it for $27k.
You’ve just generated a $6,215 profit, or an annualized return of 68.74%!
2. Be the Bank
Perhaps your business needs some new equipment, and you discover that the lease on the new machines will cost you the equivalent of a three-year loan at 21% annual interest rate! Even worse, if you prepay the lease, you’ll STILL pay the steep financing fee!
You might save thousands by being able to provide your own financing in such a situation… all because you had access to cash. In the example below, a $20,000 loan (or lease equivalent) at 21% interest will cost $27,126. Compare that with the cost of an 8% interest loan over the same time period of only $22,562:
Of course… many policies have even lower interest rates. (The rate is determined by your policy contract.) Or you might be able to use your policy as collateral at a bank to find an even more favorable rate. (Find out more about collateral assignment.)
3. Earn Cash Flow
Let’s say the business equipment scenario above isn’t your own business after all, but perhaps the business of a trusted family member. Could you offer to finance the equipment at a rate of 12%? It would be a fantastic savings for them, and you could borrow cash at 8% from a policy loan (no questions asked) and earn 12%.
You’d be making 50% more than you’re paying in interest on the borrowed money, while saving them thousands! (Of course, you would want to be confident of repayment!)
4. Create an Income
One client used his cash value to invest in cash flowing commercial real estate that generated an extra income for him after he was forced into an early “retirement” with a disability. By taking advantage of policy loans and the leverage of a mortgage, he was able to turn an excellent real estate deal into an even better one!
Learn the details of how borrowing against a life insurance policy turned an excellent investment deal from 26% gains to a whopping 111% rate of return in an article on the TruthConcepts.com blog, “How Do I Tell if my Real Estate Deal is a Good One?”
5. Take the Opportunity of a Lifetime
Network marketing entrepreneur Jordan Adler, one of the speakers at the 2015 Summit for Prosperity Economics Advisors, had always had a dream to “go to space.” Sounds pretty far-fetched, doesn’t it? For most, it would have been an impossible dream. But when Jordan actually 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
Many people consider their 401(k)s or IRAs to be their “savings.” But qualified retirement plans aren’t liquid and make poor piggy banks. You’ll pay penalties and income tax, which can gobble up nearly half of any withdrawals! In 2010, Americans paid $5.8 billion in penalties alone by tapping $58 billion in retirement funds before they were supposed to.
Borrowing 401(k) monies for allowable reasons (such as a home down payment) is also deceptively expensive due to the tax treatment. You’ll have to replace those before-tax contributions with after-tax dollars, which means you can add your tax bracket rate onto the cost of the loan!
If your dollars are locked up in typical assets, you have no liquidity.
Life Insurance: The Both/And Asset
When you have a solid, liquid asset like life insurance cash value, you can leave the asset intact and borrow against it. This leaves you with your original savings plus access to cash for your neighbor’s car, your child’s tuition, or the investment that will pay healthy returns. Best yet, your savings keeps growing, off-setting some of the interest costs.
You can argue that a certificate of deposit could give you the same advantage of liquidity – after all, what bank won’t lend against their own certificate of deposit? However, whole life insurance is a “both/and” asset” in the way that other savings vehicles are not.
Typically, you have to choose between investments, savings, or insurance vehicles. With whole life insurance, you are saving and insuring at the same time. Not only will you eventually have access to every dollar put into the policy via your cash value, you’ll also have a death benefit in place the moment your first premium is paid!
In this way, 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. Since life insurance is both savings AND protection, you won’t find this benefit anywhere else!
Capitalize on opportunities with cash value liquidity!
Whole life insurance is the best place we know to store long-term cash and build liquidity for future investments, emergencies, and opportunities.
If you could benefit from greater liquidity in your personal economy, let us run an illustration for you to show you how a whole life policy with maximum paid-up additions grows cash value faster than a traditional whole life policy. Contact Partners for Prosperity today!
For the definitive “handbook” on creative ways to capitalize with whole life insurance, see Kim D. H. Butler’s Live Your Life Insurance. (And liquidity is part of the C.L.U.E. method you’ll learn in the book!) The revised, expanded version is available in paperback, Kindle and Audible editions on Amazon.
~ by Kim Butler and Kate Phillips