It’s no coincidence we finished off 2023 with an article about how to build something greater than yourself. A funny thing happens once you decide in your mind that the ultimate goal isn’t necessarily to be the best, or the fastest, or the richest; rather WHO you are with that matter. HOW you personally define the word “value.” WHERE you place your most prized possession: time. WHEN do you stop making excuses and do the thing you’ve always said you wanted to. And WHY you do what you do. As the phrase goes: he who dies with the most toys, still dies.
May you consider something that will last; something bigger than yourself; something worthy of a Legacy!
The POWER of IBC: Generationally Impact Your Kids
by The Legacy Project
If you have ever become a parent, you would know that everything changes as soon as your child is born. Suddenly, the world no longer revolves around you and your own needs. You go to work not just to enjoy fancy dinners and buy extravagant gifts for your spouse anymore - you now have to provide for your child, too. And you don't mind it at all! You want nothing but the best for your child. You are willing to go the extra mile to see them happy. You will buy them ice cream, new fancy shoes, and anything that makes them happy. You want to provide them with the best life possible. I want to share something that has profoundly impacted me about caring for my children while they are young and after I am gone. Someday, I will graduate from this life. Still, my Legacy will continue to provide for my children, their children, and all future generations.
During lunch with my friend Chris, he shared an interesting financial strategy with me. He explained how he could cover all significant expenses in his daughter's life for only $420.00 monthly, which amounts to $5,000 annually. This strategy includes her first car, college education, wedding, down payment for her first house, her child's college education, and even her retirement at $90,000 per year. His approach was intriguing and caught my attention.
He pulled out a spreadsheet with numbers to show me how he achieved his dreams. He explained that by creating a dividend-paying, whole life insurance policy from a mutually-owned company, he was able to make his dreams come true. "In a life insurance contract," he said, "there are three people involved: the insured individual (my daughter), the policy owner (me), and the beneficiary (my family trust)." He went on to explain that being the policy owner of this specially designed policy on his daughter, which he designed to have a high amount of cash value, Chris could use the cash for anything he wanted. He used the money for his daughter's car, college, and wedding without waiting until he was 59 and a half! "But the best part, Landon!" Chris exclaimed, leaning across the table with raised eyebrows, "The compounding interest on that money is never interrupted."
I stared at the paper, somewhat confused.
I was perplexed and wondered, 'How is it possible to both utilize and increase the cash value of a whole life insurance policy simultaneously?' Although I comprehend the idea of cash value, since I have a small whole life policy with a minor amount of cash value, I am still confused about how it can be utilized and grown simultaneously.
Chris asked, “Are you wondering how to grow your money and spend it simultaneously?” “Yes!” I replied. He explained that by withdrawing money from the cash value of the life insurance policy, you are not withdrawing your own money. Instead, the life insurance company's money gets deposited into your bank account. This way, you can spend your money and grow it simultaneously without actually using your own money. However, I still had some questions. Chris elaborated, "Every year, I deposit $5,000 into my daughter's policy, which I don't call premiums but deposits. I consider them deposits into my family's bank, specifically my daughter's bank. Over time, the deposited amount grows with uninterrupted compounding interest, even when I withdraw money to make payments for my car or other things. I repay myself for the car purchase just like any other conventional loan, except that I'm paying it back to myself, and I get to recapture that interest. My family and I get to keep all the money and interest within the family. At the end of three years, I would have my daughter's car, the money I spent on it, and the interest on that money. And all of this is achieved while growing the cash tax-free with uninterrupted compound interest."
He paused and looked at me.
Chris points to the spreadsheet, "Look, I'll show you."
During the next 20 minutes, Chris demonstrated how his deposits to his daughter's insurance policy increased his cash value every year. According to the spreadsheet below, by the time his daughter turned 18, he had accumulated over $108,000 in cash value.
From age 18 to 21, he withdrew $80,000 worth of cash value, $20,000 per year, to pay for the portion of tuition that college scholarships did not cover. Chris continued depositing $5,000 annually into the policy while his cash grew at an uninterrupted compound interest rate. In year 29, Chris withdrew $40,000 worth of cash to pay for her wedding. In year 32, Chris withdrew $60,000 as a down payment for her first house.
As I thought Chris was finished, he looked at me and exclaimed, "Watch this... this is the best part!" He flipped the page to reveal more information on the spreadsheet about his daughter's future. It showed that at year 50, his daughter withdrew an additional $120,000 worth of cash value to pay for his granddaughter's college. But what amazed me was that starting at year 64, $90,000 per year was taken from the policy to pay for his daughter's retirement, which continued until year 90 and beyond. By the time his daughter was 90, he had deposited $398,000 into this policy. The total amount extracted from the policy was $2.7M. The net cash value remaining exceeded $2.9M, with a cumulative cash value of over $5.5M (if he would have never borrowed against his policy). Utilizing the policy as a personal bank resulted in a net return of over 738%.
After Chris blew my mind, I leaned back in my chair and stared at the ceiling, smiling. I took a deep breath and exhaled.
"I want to learn more," I said. "Can you help me?"
"I'd be delighted to," he replied.
(click on the file below for the full example illustration)
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