Live Your Life Insurance: Surprising Strategies to Build Lifelong Prosperity with Your Whole Life Policy

Kim D. H. Butler (2009)

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Introduction

Page 7: How do you calculate the value of liquidity and the opportunities that arise when you have high-quality collateral and guaranteed access to money? How can you compare whole life insurance to a qualified retirement account that will one day be divided up between the government and the investor who will have to pay income taxes at a likely higher "to-be determined" rate?

Page 8: How do you measure the stability of companies that have been paying dividends decades before the mutual fund industry even existed? It's equally difficult to quantify the value of the peace of mind that comes from knowing that your cash value and your death benefit will only grow over time.

Page 8: And have we considered the significance of the fact that mutual life insurance companies have no stockholders? Mutual companies are owned by the policyholders who receive - in addition to modest guaranteed minimums - ALL of the profits of the company, after costs and required reserves, in the form of dividends. This mutual ownership allows mutual insurance companies to make sound long-term financial decisions that benefit policyholders. They have no shareholders or 8-figure executives that compete with policyholders for earnings, nor are they pressured to drive up this quarter's profits with short-sighted decisions.

Page 8: Whole life insurance was largely abandoned by the 1990's due to the 401(k) juggernaut and the rise of mutual funds.

"The first beneficiary of your life insurance policy should be YOU."

Page 10-11: We acknowledge that universal life, variable universal life, and equity indexed universal life may work with some of the strategies in this book. We don't specifically address these other types of permanent insurance for the following reasons:

• Premiums are often not guaranteed (how much you pay can vary, both up and down)
• No minimum cash value amount is guaranteed (whole life has a new floor set every year)
• Only an interest rate is guaranteed (which means nothing if your account has no money, or if mortality costs and policy fees outweigh your cash value gains)
• Death benefits are not guaranteed without an extra charge
• Mortality assumptions can change and are very difficult to understand
• Indexed policies provide a poor hedge against the stock market (shouldn't life insurance be the safe, reliable, steadily growing portion of your portfolio?)
• Lack of proof that these newer types of life insurance work on a long-term basis (we've seen some poorly-constructed policies lose value or even become worthless, as well as policy illustrations showing ridiculous 20%+ annual gains.)
• Not all types of permanent life insurance endow, which makes me wonder why they are referred to as "permanent"! When a policy endows, say at age 100 or beyond (the policy contract will specify), the policyowner actually receives the death benefit. The cash value equals the death benefit at that point (subtract outstanding policy loans and interest).
• Under-funding is promoted as a way to lessen the cost of the life insurance, which completely misunderstands the nature and benefit of the insurance. We ask, if life insurance is a good and helpful way to increase your assets, why do you want to put the least amount in it?

The value of saving money is extolled when a saver opens a savings account and proceeds to save as much as they can. Yet when saving in a life insurance policy, the people often aim to put as little money into as possible, thus minimizing the benefit of the cash value! It is natural to do this because we typically think of insurance as a cost or an expense, not as a place to grow cash. In reality, the way to "save money" is by putting MORE into a policy, not less! Using life insurance to store cash builds liquidity, which can then be utilized in many ways,

Part 1 — Building Wealth for Life Who Can Benefit from Life Insurance?

Page 13: Life insurance is often equated with the death benefit alone and spoken of as something you "need" only if you have dependents. This is a limited understanding of permanent life insurance and its living benefits. Sadly, even many certified financial planners have a poor understanding of the potential power and uses of a properly-constructed life insurance policy. In contrast, corporations and banks understand exactly how to use life insurance for their benefit! It is a telling state of the financial industry that the financial corporations do one thing with their money while advising Americans to do something else with their money, but perhaps we can learn from the example. COLI (corporate-owned life insurance) and BOLI (bank-owned life insurance) are used to increase liquidity and grow money in a tax-advantaged environment, as well as fund employee benefits and compensation.

Page 14: The question is often asked, "How much life insurance do I need?" But this is a misleading question. We discuss life insurance (notice it's not called death insurance) from a Human Life Value approach, not a "needs" approach. Human Life Value (HLV), according to Solomon Huebner, is "the value of your future earnings." Many life insurance companies use various parameters to evaluate this, such as fifteen times your income or one times your net worth. Everyone has HLV, even if they are stay-at-home parents or retired volunteers living only on social security payments. You are important in this world, and HLV is only one way to measure that importance economically.

Page 14: Properly understood, life insurance is a want. You don't "need" life insurance, your family may need it, but you can use life insurance, especially since the triggering event is guaranteed. Because death is guaranteed, you know there will be a benefit from the insurance as long as it is in force when you die.

Page 15: Sources inside the industry claim that between 1 and 2% of term insurance actually stays on the books long enough to pay a claim. The simple fact is that term policies become prohibitively expensive to renew as we begin to approach our life expectancy. When most term life insurance policies expire, the death benefit vanishes from the policyholder's balance sheet. Therefore, term should be thought of as "temporary" life insurance and used accordingly.

Page 16: Term is only "less expensive" because it is typically temporary insurance that rarely results in legacy benefits. Everyone seems to be chasing after the next hot stock, the next big idea, and other "sure things." Common financial advice says to "max out your 401(k)" and sock your money away in mutual funds, often even before a solid emergency fund is built. But there are problems with this idea.

First of all, savings should come BEFORE investing.

Page 16: Saving money means putting money where it is SAFE! Saving creates the foundation for wealth. It is what allows a person to invest, knowing that their investments can grow without interruption. Saving money is where wealth begins, and it's a habit that the truly wealthy never stop practicing. Savings vehicles do not subject dollars to risk. As long as the money remains in the mutual funds, you run the risk of another 2009, when retirees and those soon-to-retire found their nest eggs cut in half. As it turned out, those who lost so much in the last economic downturn weren't "investing" after all... they were speculating. Speculating is what we do when we don't KNOW what an investment will earn. We're just guessing.

Page 17: Roth IRAs and 401(k)s are typically invested in mutual funds, in which case they suffer from most of the same problems as other qualified plans: volatility, inflexibility, and inability to borrow against. Saving money is different from investing, and it's certainly different from speculating. Saving has nothing to do with market timing, nor does it require your time, attention, or lost sleep. Savings, as opposed to investments, are guaranteed.

Why Life Insurance?

Page 17: There are numerous benefits to using life insurance as a cornerstone of your financial strategy:

1. Custom-Designed for You. Life insurance requires little money to get started. You simply begin with monthly payments tailored to your capability, whether that is $50 or $5,000 per month. (And should your situation change, there are ways to adjust your out-of-pocket requirement.) Life insurance can help those who wish to start saving with small payments on a "starter" policy or a child or grandchild's policy. It also provides tremendous advantages for anyone who wants to move larger sums of money into a private, secure, tax-advantaged environment, without the government restrictions and contribution limits. There is no lump-sum requirement to start. You can choose monthly payments if the annual payment is not in your budget, and if necessary, you can adjust payment frequency as you go along, or skip some of your optional paid-up additions. Your life insurance policy is designed to fit you. Your policy can be structured to maximize cash or death benefit (we typically recommend the latter, but there are exceptions.) You can fund a policy in as little as 7 years or as much as a lifetime. In some situations, you don't even have to be insurable! You can be a policy owner even if you are not the insured.
2. Competitive Returns. When held long term (beyond 10 years), the internal rate of return of a life insurance policy typically out-performs bank savings accounts and CDs, money market funds, fixed annuities, t-bills and other cash equivalents and "safe money" vehicles. Whole life insurance is a safe and reliable vehicle for long-term savings with a surprisingly impressive cash-on-cash rate of return. Current interest rates at banks are just above zero at this writing, while the internal rate of return (net) for whole life policies held long term is hovering about 4% - 4.5%, net of fees. This is historically low, as the rock-bottom interest rate environment has had an effect on life insurance as well as other economic environments. When bank rates rise, cash value rates of return tend to float higher as well, typically a few points higher than whatever rate savings accounts are paying.
3. Flexible Funds or Collateral. One problem with many savings and investment vehicles is that you are limited as to when, how, and for what purpose you can access "your" money. When you have life insurance cash value at your disposal, you don't have to wait until you are 59-1/2, pay penalties, ask permission from an employer, or prove that the funds are only being spent on healthcare or college tuition. Whether you want a new roof, a down payment for a rental home, or a honeymoon vacation, your cash value provides the means. You can withdraw it or borrow against your cash value, using it as collateral. Borrowing against it is often a better choice when looking at the big picture of your personal economy, but it's liquid and it's your money!
4. Privacy and Asset Protection. Cash value accounts and their growth are not reported to the IRS, nor are they counted as "assets" on a FAFSA student aid application. Policy loans require no credit qualification and are never on your credit report. Additionally, in most states, life insurance offers protection against lawsuits and creditors. This asset protection may be absolute or limited, depending on your state's regulations. Some people find the ability to grow and store cash without the prying eyes of banks, the IRS, other federal agencies or creditors an important reason to prefer mutual insurance companies over banks when it comes to storing cash!
5. Tax Advantages. As long as you don't cancel the policy, under current tax law, there won't be any income taxes on the cash value within the policy, the death benefits, or money borrowed against them. You can also receive income from a policy through dividends (up to basis) and policy loans without reducing your social security benefits. This is because policy loans and dividends (up to the amount that you have paid in premiums) are not considered taxable. Whole life policies can also be used to gift money with no income taxes or gift taxes while you are living. If tax laws change, you still get all the other benefits. It is interesting to note that Roth IRAs have been a hot topic. However, life insurance cash value, which is governed by similar tax law, is liquid and is not tied up until age 59 1/2. These cash value accounts grow tax-free while in the policy, can be used as collateral for tax-free policy loans, and unlike most retirement accounts, won't give up a dime in a downturn.
6. A Financial Legacy. In spite of many attempts to do so, you cannot compare any sort of retirement account, mutual fund, income or savings vehicle "apples to apples" with life insurance for a simple reason that life insurance critics seem to conveniently neglect: life insurance provides a death benefit! When you put your first contribution into an IRA, 401(k), or 529 savings plan, your future estate's net worth doesn't magically increase by tens or even hundreds of thousands of dollars. Yet this is exactly what happens when you pay your first premium on a whole life policy! From the very first payment, life insurance policies are "selfcompleting" saving instruments. Should something happen to you three months from now, your policy will provide a legacy for your loved ones and/or the causes you care about. And should you live to age 100, your policy will provide.
7. Personalized Protections. In addition to the death benefit, life insurance can provide other benefits and protections through optional riders:

• The Paid-Up Additions (PUA) Rider increases both your death benefit and your cash value.
• A Guaranteed Insurability Rider relieves concerns about your ability to qualify for additional life insurance in the future.
• An Accelerated Benefits Rider allows you to receive a portion of the death benefit in cases of terminal or chronic illnesses.
• The Waiver of Premium Rider keeps your policy and all of its benefits in force in the case of total disability.

In summary, your life insurance policy is a custom-designed financial vehicle with personalized protections that provides competitive returns, can be utilized or borrowed against, offers privacy and tax benefits, and creates a legacy benefit.

Part 2 — Living with Your Cash Value

Page 23: We use what we call the CLUE Method of a dividend-paying, whole life insurance policy. This method is so valuable that almost everybody should own one for their own benefit. Notice we said "own"… which doesn't necessarily mean the insurance is on you, but rather that you own and control it. You can own insurance on anyone for whom you have an "insurable interest" — a child, a business partner, a key employee, or anyone so close to you that if they died, you would be affected. This enables almost everyone (even many who have a thick medical file and may be uninsurable) to benefit from this concept. The CLUE Method This method is an instrumental part of the principles in this book. So how to do you get a CLUE? It stands for:

C = Control
L = Liquidity
U = Use
E = Equity

The cash value is your CLUE account. Cash value and death benefit are 100% in control of the owner (not the insured), and the cash value is 100% liquid. You (the owner) can use both the cash value and the death benefit while you are living, and they work like equity in real estate — with one major exception: they can never go down, only up.

Page 24: CONTROL: You own it, you control it. You say when, how much, who, how often, and why. It's YOUR money - not your employer's, the government's, not even your beneficiary's (as long as you're living). Contrast this to other types of accounts that don't give you full control:

• A qualified retirement account may offer government-blessed tax deferrals... but a loss of control! You are told when you can use the money and for what purpose. You'll even be told (later) how much taxes you will have to pay to access your money, as future tax rates are also not in your control!
• Health savings accounts and education savings accounts can only be used for approved reasons without suffering tax consequences and penalties.
• An UTMA or UGMA Custodial account (generally used for college saving) becomes automatically controlled by the child when they turn 18-21, depending on which state they reside in.

LIQUIDITY: Almost all of your account is liquid within ten days or less at most insurance companies. You can withdraw it, borrow against it, or simply let it grow. (Note, there may not be much net cash value in the first few years of the policy, but whatever is in there is available up to your company's limit, typically about 95% of cash value.) Cash value accounts cannot lose value and their value won't "roller coaster ride," as stocks, commodities, and real estate are known to do. Your gains are locked in each year. It is also important to note that cash value accounts are not leveraged and fractionalized by the financial institution as are savings accounts at a bank. Insurance companies are not allowed to lend out the same dollar again and again and again. For this reason, banks purchase billions of dollars of permanent life insurance to hold as part of their "tier 1," or highest quality, assets. (Insurance companies give banks liquidity, too.)

Page 25: USE: Because cash value is under your control and liquid, you can USE it in countless ways! Like a Swiss Army knife or a smartphone, it can serve many purposes. Your cash value is an "all-purpose" account that can be used as:

• a short-term savings account to make planned purchases
• a long-term savings account for financial freedom or inheritance
• a college tuition and expenses fund that isn't counted as an "asset" on the parents' FAFSA.
• an emergency fund
• an opportunity fund (for investments)
• an account to leverage against for capital expenditures or a business loan
• and any other use you can think of!

Even if you never move a dollar, your cash value account is the single most-efficient and effective place to store money. It's efficient because it grows in a tax-deferred manner (taxable only if you cancel or withdraw cash above the basis). It's effective because you can borrow against it while it still grows at the gross value. Both capabilities are not available in 401(k)s and other tax-deferred accounts. In fact, when you die, this cash-value account (now turned death benefit) will pass on to your heirs without any income tax paid at all, under current law. It's the best place to store "peace of mind" money.

Page 25: EQUITY: Just think real estate. Equity in real estate is leverage-able, you can borrow against it, but the underlying asset just keeps on growing unaffected by the debt. This is the single most misunderstood aspect of this product. You borrow against it, but you don't take it out. The net cash value is what is left over to still borrow. For example, if you have $100,000 of gross cash value and you borrow $40,000, your account will still grow as if it were $100,000, not $60,000.

If you are borrowing against your cash value to invest, that interest should be deducted against that investment's earnings. However, if you are borrowing against the cash value to pay premiums (for an Automatic Premium Loan) or go on vacation, then that interest is not deductible. Unlike real estate equity, cash value accounts do not require you to qualify to withdraw or borrow against your own asset. Your credit score or income status is irrelevant. This is equity that's under your control, it's liquid, and ready to be used when needed or desired!

PHASE 1 — The Start-Up Phase (Years 1–5 of the Policy)

Page 26: This is the hardest part, deciding you want to adopt this more-effective but less known way of handling your finances. It's like starting a business; not only do you have to work against the naysayers, but you have to write checks, write checks, write checks, and only then do you see any benefit. During this phase, you are converting cash to cash value plus putting an immediate and growing death benefit in place. Both can provide taxfree income when used properly. And both are wonderful things to have, but hard to start. However, one start-up (though you may have many) equals a lifetime of benefits.

Page 26: Many people want to save for their next car, home down payment, or investment. They save then spend, save then spend, and are always starting over from scratch! When you begin to think of the big-picture, long-term view of your personal finances, you will understand that saving in order to create a long-term asset that you can borrow against (while it keeps growing) is a much better strategy.

Phase 1 Questions for You to Think About:

1. How could you get your own policy started? How much would you like to save on a monthly or annual basis?
2. Who could you use for the insured while you were the owner, if that's a better arrangement for your situation?
3. What assets or cash-flow streams of yours might be better placed through a life insurance policy than where they currently are?

PHASE 2 — The Leverage Opportunity Phase and Investment Capability Phase (Years 6–30 of the Policy)

Page 29: This is the phase where you begin to USE your life insurance. It can begin as early as Year 2 or as late as you like. Taking full advantage of paid-up additions can help you start this phase sooner than later. (They are optional but they help your policy build cash value faster.) Utilizing your life insurance in this phase can enable you to make better use of the game of financing (cars, vacations, etc.), as well as to make better investment decisions. Now that you are past the start-up phase, you can see that every dollar you put into your policy is turning into more than one dollar of cash value. Not only does this increase motivation to keep funding the policy, it gives you opportunities for leverage and capabilities for investments.

Page 30: Life insurance loan interest isn't always deductible. However, if the loan is used for a business purpose or investments and you can prove it, then the interest is deductible against the earnings from the investment. We never recommend borrowing to invest unless you are putting the money in a proven investment with predictable returns.

Phase 2 Questions for You to Think About:

1. What loans do you now have that could be restructured to take advantage of borrowing against your policy's cash value instead of from a bank?
2. How would the ability to provide your own financing or fund your own financial freedom account give you greater independence and more choices?
3. What investment opportunities have you found that need a lump sum of money, yet you only have the ability to save a smaller amount every month?
4. Could starting a life insurance policy enable you to build the lump sum by saving what you can now?

Capsule Concepts in Part 2

Page 34: Borrowing and receiving dividends (if left in the policy) are tax-free events.

The CLUE Method:
Control - Start flowing money to yourself in an account you control instead of away from yourself in accounts you don't control.
Liquidity - Build wealth that cannot be taken away from you by the stock market or the real estate market rollercoaster rides, or because you no longer qualify to access "your" equity.
Use - Save money for later or purchase discretionary items now.
Equity - Create an account where you are benefiting from the ability to leverage, in a way that is better than paying cash, because paying cash is losing interest in an investment.

Process to pay back policy loans:

1. Choose the method and time frame. (Again, YOU choose this.)
2. Pay back interest only, OR
3. Make monthly payments of principal and interest, OR
4. Make quarterly payments of principal only, OR
5. Make lump sum payments of principal only.

Page 35: Most people have each of their dollars only doing one job — retirement funding, educating their children, paying off their mortgage, etc. However, once you've learned how to live your life insurance, you can see how easy it is to get one dollar to do many jobs. We want our dollars to do multiple jobs because this helps our dollars be more efficient and multiply, thus growing more quickly.

Page 35: So, as we close our cash-value section, let's see how life insurance is similar to real estate and how the two together can get one dollar to do sixteen or more jobs. Real estate ownership has eight main characteristics:

1. Mortgage payments
2. Property
3. Potential appreciation
4. Depreciation (if it's investment real estate, which gives you tax advantages)
5. Cash flow
6. Disposition
7. Leverage
8. Stepped-up basis to heirs (no tax)

Life insurance also has eight main characteristics that are very similar:

1. Premium payments (which, like mortgage payments, are one of the few things benefited by inflation)
2. Cash value
3. Death benefit
4. Waiver of premium
5. Increasing death benefit
6. Paid-up addition capability to increase cash
7. Leverage
8. Income tax-free to heirs Both real estate and life insurance also grow and can ultimately be "sold" with minimal tax liability, as indicated by the eighth characteristic.

Page 36: If you can borrow against your life insurance to buy real estate and use your real estate to pay back your life insurance loans, you've got one dollar doing about twelve to fourteen jobs. This is just an example, and you don't have to combine life insurance and real estate to get one dollar to do many jobs, but the two do work very similarly and potentially synergistically. Furthermore, if you add the ways to use your death benefit while living, which we'll cover in the next section, you add at least five or six more jobs. By using the same dollar in a real estate vehicle we can create leverage, start an income stream, purchase an appreciating asset and pay down a mortgage, thus our dollars can do more for us. Similarly, we can harness whole life insurance to grow an emergency fund, save for new cars, pay college tuition, create future income for ourselves and leave a legacy for our loved ones.

Part 3 — Using Your Death Benefit While You Are Alive

PHASE 3 — Spending Other Assets (Years 20–40 of the policy)

Page 37: This is the cross-over between Part 1 and Part 2, between using your cash value as a cash account to borrow against and using your death benefit to borrow against. Typical ages of those insured during this phase are the 60s, 70s, and 80s, and how you use your life insurance at this point will depend on how long you've had it, as well as how many dollars are currently borrowed against it.

"The first beneficiary of a life insurance policy should be the owner." — Bob Ball, trainer extraordinaire to life insurance agents nationwide

Page 40: Selling your life insurance policy is typically known as a "Life Settlement." This is done in a confidential, escrow-controlled environment in which investors buy your policy — paying you more money than the insurance company might in net cash value, but less than the death benefit. One might also use a bank or a private individual to accomplish this, basically leveraging the death benefit in advance.

Phase 3 Questions for You to Think About:

1. Who do you know who is living only on interest because they are afraid to spend their principle?
2. How could your home and even your mortgage become tools to give you access to greater cash flow in your later years?

PHASE 4 — Using the Death Benefit or Face Value (Years 41–50 of the Policy)

Page 41-47: There are seven ways you can use your death benefit or face amount while you are living. These can be combined or used as stand-alone strategies:

1. THE SPEND-DOWN:
Typical retirees spend only interest, leaving their principal in the hands of the financial institutions. Guess who benefits from this? The institutions and the government do, and you don't! Instead of leaving your dollars at the mercy of taxes and fees, you can purposely take out interest and a portion of principal every year in what is called a spend-down or a pay-down. When you do this, you receive more money, pay less tax, and leave fewer dollars in control of the financial institution. Firstly, this strategy should first occur with all qualified plan monies like 401(k)s and IRAs, as well as any SEPs, Simple IRAs and 401(k)s. Believe it or not, the Qualified Plan (IRA, etc.) is the last asset you want to die with! Secondly, spend down all taxable accounts like CDs, money markets, stock accounts, mutual funds, bonds, etc. If you are unsure of your time frames (like the 21 years we used on page 22), we suggest you take an 8 percent withdrawal. Most planners would suggest 4 percent or 6 percent, but this is not sufficient to remove enough principal. If 8 percent won't zero out the account in twenty years or so, then we suggest using an even higher interest rate.

2. REVERSE MORTGAGE:
Remember, the value of a house is two-fold: a place to live and a potential asset that can be sold, leveraged against, or passed on to children or grandchildren. If you combine a reverse mortgage with life insurance, your cash flow will increase and your heirs will be better off (with more flexibility) after you pass on. Implementing a reverse mortgage to obtain a tax-free income from your paid-off (or almost paid-off) home is an efficient use of a lazy asset — if you can see the benefits and stop worrying about paying off your home. This strategy increases your debt, but also allows for the life insurance death benefit to then pay it off, if you choose. Some people struggle with the moral ramifications of the concept or their own expectations of having a "paid off home," even though it's been a viable strategy for years.

3. TAKE LIFE INSURANCE DIVIDENDS OUT IN CASH NOW: This is a strategy to use later in life. Switch from using dividends to purchase paid-up additions to having them paid out in cash. This can supplement your income, which may mean the difference between a trip in the car and a trip in a plane — or more importantly, the difference between just surviving and really living. The annual dividend can be taken in taxfree cash, up to your basis.

"Basis" is defined as the total amount of money you've paid as premiums and paid-up additions.

If you exceed your basis, then your dividend (if taken in cash) will be taxable, although you could switch to loans at that time and avoid having the income stream taxed, according to current I.R.S. law. We suggest you still make the premium payment every year to enable the dividend to keep rising and keep up with inflation, but depending on your circumstance, this may not be necessary.

4. PENSION MAXIMIZATION:
This suggests a strategy for those of you with defined benefit-style pensions whereby you must make a choice between taking income during just your life (single-life payout) or during two lives (joint-life payout). If you have life insurance in force, you can take the higher payout (singlelife), knowing that when you die, your spouse will get the death-benefit money and can turn that into an income stream (to replace what may have been the pension income).

5. LEVERAGING THE BENEFIT BY SELLING IT:
The purchaser can be a public company or a private party, or you can use it as collateral. In the first instance, you sell your policy to a life settlement company, which specializes in buying death benefits for more than the insurance companies pay for them. Typically, life settlement companies investors are looking for policies of someone with in their 80's or beyond with a life expectancy of 1-7 years. The amount your insurance company would give you is the "current net cash value surrender amount," which is the cash-value account you've been using all along. The life settlement may be more, depending on your age and health at the time. Likewise, you could do the same with a private party or a family member who was willing to take the risk. (We always recommend discussing decisions with your children, they may make you a better offer in order to keep the assets in the family! Lastly, you could also use the death benefit as collateral. Remember, at this point, we are discussing the phase of your policy when you are in your 80s, 90s, or beyond. So, at that age, you could go to a bank or private individual and assign to them some or all of your death benefit in exchange for lending you some cash. This would leave you in control and with the ability to pay them off at any time and gain control over your policy again. Finally, when you die, they would be paid off and your family would receive the rest of the death benefit.

6. THE CHARITABLE REMAINDER TRUST (CRT):
This is a way to sell a highly appreciated asset (like stocks, real estate, or a business) through a charity without paying as much capital gains tax as if you sold it directly. Here's a very simplified CRT process:

1. Give the asset to a charity;
2. Get a deduction for the gift;
3. Let the charity sell the asset;
4. The charity then invests the money and
5. Pays you an income stream.
6. The charity gets the remainder of the money when you die, and
7. Your family gets the life insurance instead.

In this process, step 5 would be the way you'd use your death benefit while you were living. Most people wouldn't follow this strategy if it meant their family would get nothing, but by having your life insurance in place, your family is made "whole" in Step 7.

Charitable Remainder Trusts can work especially well with homes, businesses, and assets that are "hard to share," particularly if heirs live in different parts of the country and have varying interests. By utilizing life insurance as an "equalizer," this strategy can help prevent family feuds as well as reduce taxes, provide income, and contribute to a worthy cause.

7. ANNUITIZE THE POLICY:
You can annuitize the policy with the insurance company that is providing it. Most insurance companies will provide this option, but it's one you'd want to do quite late in life as it's irrevocable, and with some types of annuities, the older you are, the more monthly income you can receive. You will pick a timeframe: 10 or 20 years, life expectancy, or life plus a certain amount to the beneficiaries. Then, the insurance company will guarantee you a certain amount of income for the timeframe you pick. It would be an alternative to selling it to a third party like a life settlement. This strategy also works well when you have multiple policies.

Phase 4 Questions for You to Think About:

1. Who do you know sitting in a paid-off home that doesn't have any cash flow to enjoy life?
2. Who do you know getting ready to make a major decision about their pension plan and how to take income from it?
3. Who do you know who owns a life insurance policy and isn't sure what to do with it?
4. Who do you know with a highly appreciated asset, but they're afraid to sell it because of the high tax liability?

PHASE 5 — Setting Up the "Family Bank" (Years 51+ of the Policy)

Page 46: Ideally, you'll die late in life with:

1. most of your assets used up and
2. your entire net worth, at its highest point, paid to your family and charities in the form of an income tax-free death benefit from the life insurance you own.

Do remember the "right" amount of life insurance is fifteen to twenty times your income - your human life value - or one times your net worth, whichever is greater.

Page 46: With proper estate-planning documentation, this lump sum of cash could create a "family bank" whereby your grandchildren and great grandchildren could borrow sums of money to pursue opportunities. This is the way wealthy families stay wealthy for generations — they replace their assets at each generation's passing and buy life insurance at each baby's birth.

Page 46: Your family's bank can have a Board of Directors or Trustees that make loan decisions. Ideally, each borrower should sign promissory notes, pay interest and principle, and generally treat the asset like they would a commercial bank's (penalties included!). How specific you wish to design your family bank is up to you. And the legal document itself that governs the family bank is generally a changeable trust until you die, at which point it becomes irrevocable. You can also leave specific amounts of the death benefit to charity or particular family members based on your desires.

Page 47: The Prosperity Economics approach is to grow the estate as big as possible, pay some estate tax, but also end up with more money. Think through this question: Would you rather have a bigger estate and owe some tax or have a smaller estate and not owe any tax?

Phase 5 Questions for You to Think About:

1. Would you like to be able to set up your family with a banking opportunity they can use while you are living as well as when you are gone?
2. Do you have charities you'd like to continue to support after your death?
3. Are you curious about the various ways to use your life insurance while you are living? Then contact the people who suggested this book and they'll show you specific ways that would work for your situation so you could use your life insurance, too.

Page 51: Automatic Paid-Up Additions: These are what dividends buy and they do so automatically (assuming you choose this as your dividend election). The dividend purchases a paid-up (meaning no more premiums are due) miniature policy (that gets added to the base policy) that has cash value, dividends and death benefit that all increase annually.

Page 51: Manual Paid-Up Additions: These are cash payments that can be added on an optional basis. They act in the same way as automatic paid-up additions, allowing you to increase your cash value more quickly, as well as adding to your death benefit. Some companies are more flexible with this than others. Some allow monthly payments, others only annual. Some require a little ($100) to keep the door open (use it or lose it), whereas others don't. Regardless, this is a manual environment, one you control 100 percent within the guidelines of the company and the I.R.S.

Page 55: Insured: The person upon whom the policy is written. When this person dies the death benefit is paid. If the insured is not the owner, the insured does not have any rights to the policy. However, the owner may give the policy to the insured at some point in the future without any transfer for value. (Think about starting this type of policy on your child for a future gift.)

Page 55: Opportunity Cost: Opportunity cost is what you lose when you let dollars go unnecessarily to a financial institution or the government, or sit unproductively when they could be earning interest. Paraphrasing Heymann and Bloom in Opportunity Cost in Finance and Accounting, "the value of a resource is determined by its use in the best alternative given up."

Page 56: Internal Rate of Return: The internal rate of return on a policy is what the policy cash value is earning, after costs such as death benefit, commissions, and other policy expenses. As of this writing in 2015, that is between 4 and 5% per year. What you can count on is it always being a few percentage points above what a bank would pay on similar liquid accounts like savings and money market accounts.

Page 64: Before the rise of qualified retirement plans, the ever-present 401(k), and the financial planning industry, people built wealth with diligence and common-sense strategies. Investors created wealth through building equity and ownership in properties, businesses, and participating (dividend-paying) whole life insurance. Only a few dabbled in Wall Street stocks, or built "portfolios" on paper.

Page 64: Today, the common investor is steered away from traditional wealth-building methods. Instead, they are confronted with a confusing labyrinth of funds, rates and complex financial instruments of questionable value. Mutual funds have become so complicated that even the people who sell them can't explain them, nor predict when investors are about to lose money. Worse yet, over time, more than 30 percent of the average investor's wealth is drained away in fees to a financial industry rife with conflicts of interest.

Page 64: The Prosperity Economics Movement (P.E.M.) is a rediscovery of the traditional simple and trusted ways to grow and protect your money. It was started to provide American investors an alternative to "typical" financial planning, showing us how to control our own wealth instead of delegating our financial futures to corporations and the government. In Prosperity Economics, wealth isn't measured by how much money you have, but by how much freedom you have with your money. The focus is on cash flow rather than net worth. Liquidity, control, and safety are valued over uncertain hopes of a high rate of return.