3 Cases for Single Premium Whole Life

107 3 Cases for Single Premium Whole Life

Speaker: [00:00:00] Hello, everyone. I'm John Montoya, and I'm John Perrings.

Speaker 2: We're authorized Infinite Banking Practitioners and hosts of the Strategic Whole Life Podcast.

John Montoya: Episode 107, Single Premium Whole Life. Hello everyone. Welcome to the Strategic Whole Life podcast show. it's just me today and I'm going to be covering a special type of whole life policy that doesn't get a whole lot of mention, but it does have a very good use case. In fact, Four single premium whole life policies.

It really falls into a special category where it, it's not an IBC, infinite banking, design policy that most, probably expect to hear about on this type of show because we started as The Fifth Edition. We're now Strategic Whole Life, but Every once in a while, there is a case, [00:01:00] a need for a policy, such as a single premium whole life.

And just as it sounds, it only requires one premium, hence single premium whole life. Who are these policies best for? It really comes down to, I think, three sets of people. So if, what I'm going to describe sounds like you're one of these people, you want to pay attention to this episode because a single premium whole life, can really be a nice addition to your overall portfolio of everything that you're doing. And so let's, let's get into it.

Who are these policies for? the number one use case where I've done most of my work for single premium whole life policies are with people who are age 60 and older. And they typically have money sitting in a bank. That does nothing for them. they view it as their emergency [00:02:00] fund and they typically put it into certificates of deposit and they'll roll that money over every maturity and just keep it going that way.

The problem with keeping money at a bank, if you're unfamiliar, is that you're going to receive a 1099 on it every single year on money that you don't use. So government's going to take their portion. And then what you are allowed to keep, you typically, try to reinvest that money, maybe back into another CD or another, fiat type of account with the bank.

And, that all works well for the bank, but you're really shooting yourself in the foot because you do have a better option that exists if you realize you can bank Through a whole life policy and a single premium policy, basically I, I liken it to a CD, but [00:03:00] with a mutual based life insurance company, it's not a certificate of deposit.

Let me make that clear. life insurance companies don't have certificates of deposit, but the thinking is very much in line with, How do you fund a CD? It's basically a, single contribution. this is how you're funding a whole life policy in this instance. It's just a single contribution.

And the way that I view it for my clients, that are 60 and older, and they have that money sitting in a bank, otherwise doing nothing, you're better off by moving that money, I call it moving it from your left pocket to your right pocket, you're moving it from a fractional reserve banking system. To a full reserve banking system that eliminates the 1099 at the end of each year.

So you get the full growth. You don't need to send uncle Sam, any portion of it, that amount now compounds [00:04:00] automatically for you. It's going to buy. More death benefit. So your death benefit, is going to naturally increase over time. And oh, by the way, yeah, there's that death benefit that comes along for the ride.

If you think about it, if you're keeping money in your bank that you don't use really at all and plan never to use it, it's just there for emergencies. if you have loved ones that you want to leave something to, that's, a tremendous gift that you're outlining for your beneficiaries. And which would you, which scenario would you rather have your bank account, which maybe if you don't have a, an estate plan set up, it has to go through probate and all the headaches that causes in addition to being public information, as far as your assets, or would you rather have a single premium whole life policy where the cash value automatically blossoms upon your passing [00:05:00] and becomes this tax free death benefit that's much greater in amount.

For your loved ones, for your beneficiaries, it's, to me, it's a no brainer. So best use case, the most common use place is for people ages 60 and up keeping money in the bank that, Want to get more bang for their buck. they want to eliminate that 1099. They also want to have a guaranteed legacy over and beyond, the, amount that the bank would pay out, potentially after probate.

it's just a better way to go. And also too, I should mention that, a lot of these single premium policies nowadays do have the option, if you qualify for it, for a chronic illness rider. it potentially does give you access to additional funds via the death benefit while you're still living, if a doctor deems that you can't do two out of six [00:06:00] activities of daily living.

when I talk about getting extra bang for your buck, here's a way for you to do that. I had a client reach out to me recently, and he was concerned about long term care, and he wanted to have a conversation about potentially securing a long term care policy, and that certainly is an option. he reached out to me, and he was concerned about long term care, and he wanted to have a conversation about potentially securing a long term care policy, and that certainly is an option.

If you're in good health, but I let them know that, there's also these writers that are available. It's not a long term care policy specifically, but it does give you some additional benefits that, would provide you with a pool of money in the event that you can't do two out of six activities of daily living.

So that, that's a really nice, extra benefit that you get, that. No bank will ever include with their certificate of deposit offering. So there you go. the second category of people where I have found that the single [00:07:00] premium Whole life policy offering works is with real estate investors. And the, reason being is that real estate investors usually have their eye on a certain prize, a, a lot, or a lot of land, or, a specific property that they can get into and it's going to cashflow right away.

And they haven't started their IBC policies. And they're in a high time preference type of mode where they got to fund a policy yesterday and take out a loan and make this transaction. Now, I am, I don't really lean towards that high time preference, but. If you're looking to potentially invest in real estate and you need to have access to a large lump sum, it's going to be very difficult to fund a whole life policy properly over a set number of years and.[00:08:00]

For real estate investors specifically, there's a lot of patience that is required to fund these policies, build up the cash value so you will have the necessary, available cash value for that loan that you need to finance that real estate transaction. And here's an option where if you already have the money set aside, you've accumulated the assets, And you want to, quickly fund a policy and take a loan as quickly as possible.

you have to wait at least 30 days, but a single premium policy will allow you to achieve that, that funding period, basically. Stepped up from, three, five, seven years to accumulating a decent amount, to only having to wait 30 days for that money, that premium to season before you can take a loan of approximately, I'm going to say between 80 to 82 percent of [00:09:00] the premium of the single premium that you put into the whole life policy.

so that, that is a way to, really speed up the timeline, but There's always trade offs. We, talk about trade offs in the show quite a bit. And the trade off is that you are funding what's called a modified endowment contract. And if you've listened to any previous episodes, we specialize in setting up non modified endowment contracts.

And that means that. When you take a policy loan, you can take it knowing that, it's going to be a tax free event. in the case of a single premium policy, this is a MEC. And, here's the thing though. It's not a MEC on day one. It is, these type of policies only become a MEC once your cash value has exceeded your [00:10:00] contribution basis.

So let me outline this for you with a, an example. Let's say you fund a single premium whole life policy with 100, 000. In that first year, what you're going to see, because there is a cost of insurance that's going to come out, you're going to have maybe somewhere between 92, 000 to 95, 000 worth of cash value in there.

So you have not reached your 100, 000 contribution basis. You have less than what you've put into it in the first year. So if you happen to take a loan after 30 days. It's a tax free event, and you can pay that loan back over two months, 10 years, or potentially never at all. I'm just throwing that out there, not that I think you should never repay it, but that loan, because you took it before you exceeded the contribution basis.

That loan is going to be tax free for as long as you keep that [00:11:00] loan outstanding. But let's fast forward a couple of years now. And typically what I've seen is that these policies, the single premium policies will reach a break even by year three, sometimes depending on your age and your health rating, it might happen by year two, but normally I'd say it's about year three where your contribution basis is it has now, reached a point where, the cash value in the policy exceeds it.

What does that look like? back to the 100, 000 example, let's say by year three, now the cash value available is 102, 000. So that means that you have a 2, 000 gain. So if you didn't take any loans in the first three years. But now into your third year, the cash value exceeds what you've put into it.

When you take that first loan, [00:12:00] and I'll give an example, 50, 000 loan. the first 2000 of it is going to be treated as a taxable event. Now, this is not a end of the world scenario. REM shouldn't be playing in the background there. it's not the end of the world as we know it. it just means that you're going to be, there's going to be a 1099 on that 2, 000 gain.

You'll pay it. And what's going to happen is the life insurance company is going to step up your basis. Your original basis was that 100, 000 premium. Now it's a step up in basis to 102, 000. Because they're going to recognize that you took out a policy loan and you realized that gain. You pay the taxes on it and you're done with it.

You'll pay that loan back. You'll be an honest banker. You'll replenish your policy. And when you go to take out your next loan, you have a step up in basis of 102, 000. A single premium policy, [00:13:00] even though it is a modified endowment contract, it's still going to accomplish all these additional benefits that you probably know and realize if you're familiar with an IBC type whole life policy, except for that one major trade off, which is the availability to take tax free loans, once your, cash value has exceeded your contribution basis. so there you go. For real estate investors, this is a really nice solution for those of you who just can't wait to fund a policy through its proper funding period.

And it provides you with an option To be your own bank, especially if you have, that type of, transaction that's on your radar and it's going to be coming up, within 12 months or less. This has proven to be a really nice solution. [00:14:00] Now, that's the second category. Of people that single premium whole life policies make sense for.

The last category is going to be for parents who are planning to send their kids to college. And maybe, they're already in high school and you quite haven't done, the, type of planning you wish you would have in order to shield some of your assets from the financial aid formulas, this is a really convenient way.

It's not a, there's no like special loophole. It's not some magic trick, that this is all legal. you can reposition a portion of your assets, put it into a single premium policy. There's no surrender charges, by the way, on these policies, just like with any whole life policy. Real important to note.

you're not going to get dinged if you were buying a universal policy with a 10 percent surrender penalty. So if you [00:15:00] decide to cancel this policy after your kid graduates from college, so be it. You'll walk away with whatever the remaining cash value that you haven't borrowed out of it. But this is a way for parents.

Who can, direct a portion of their assets into a policy, shield it from financial aid formulas and have that money set aside to fund college tuition. so three categories of people, age of 16 up sitting, with money in the bank, not touching it, real estate investors. And for parents who have, I'd say high school aged kids who want to do some light stage.

College financial planning, a single premium whole life policy should be considered, at least looked into. And, like I mentioned, you're, going to get all the, benefits of a traditional infinite banking style whole life policy with these single premium [00:16:00] policies, except for that you are going to get a 1099.

Once you reach that, crossover point, typically after year three, when you go to take out a loan, it will create a taxable event. But, if you believe in, you actually don't even have to believe in it. this is all, set in contractual terms that money is going to grow for you in any type of whole life policy.

It's going to grow tax deferred. It's going to be available for you, for withdrawal or loan. The cash value is going to increase every single year, regardless of whether you have a loan against it or not. You'll still earn dividends even with loans outstanding. The death benefit is going to increase each year because when a dividend is paid, dividends being non guaranteed, but when the dividends are paid out, that's going to increase your cash value and automatically increase your death benefit every single year.

So you have both. [00:17:00] increasing in value for as long as you live. I mentioned that you may get additional benefits like the Chronic Illness Rider. these are all available by you choosing to think independently. Placing a priority on being sovereign, choosing a place where you are aligning your thoughts and actions with other like minded people who believe in sovereignty and freedom and, being your own banker.

That's what the show is all about. It's, helping you to make that transition. So that you become more self reliant. So a single premium policy, it may or may not, be right for your situation, but you should at least know about it. So hopefully, this helps you to learn a little bit more about, this type of policy.

if you think, You'd like to learn more and see [00:18:00] if it might apply to your specific situation. Let us know, reach out to us. You can find us at StrategicWholeLife.Com and you can request a time to speak with either John or myself, and we'll be happy to walk you through it, show you some numbers as far as what this looks like.

And I think more importantly, just have a conversation about whether this type of planning fits with what you want to accomplish. So why not find out? All right, everyone. Appreciate you listening to the show, your feedback. And, if you do have questions and would like to connect, just let us know, StrategicWholeLife.Com. All right. Until the next episode, take care.