How to be your own banker!

When you buy a car how do you pay for it? Cash? Borrow from the bank. Since the bank takes deposits and loans it out at a higher interest rate this is how they make money.

Suppose you could do the same with your insurance policy? If you set up the insurance policy right, you can pay cash for the car. Then you would pay yourself principal and interest (what you would have paid the bank) back into the insurance policy the money grows at a rate much higher than the bank would offer. You could take it one step further, do you have auto insurance? Do you have a deductible? If you increase your deductible or better still get rid of it you may save $500 or more on your insurance every year (depending on the year and make of the car) Take that $500 of “found money” put it into your tax free sheltered insurance policy (read more below) and watch it grow! Remember, if you where in an accident you would still have to pay the deductible out of pocket! For a newer car just by increasing the deductible by a $1,000 the savings is impressive…just remember is put the “found money” to work not spend it!

If what you thought to be true was not, when would you like to know?

Participating policies (whole life is misunderstood by many people, media, financial planners and insurance agents!)

If you can buy a product that has paid dividends every year for over 100 years grow tax free and earn about over 2% more than a five year GICs over the last 30 years. Access this money tax free without going to a bank. Would that sound good to you? What if there was almost no limit to what you put in?

How does it work? The insurance company invests a pool of money conservatively as an example: about 20% in stocks and 80% in high grade bonds like government and corporate. Mortality rates (when policy owners die). In every decade over 100 years people are living longer. Expenses, taxes, administration fees. Death benefits to beneficiaries. Premiums collected. Policy loans outstanding. All of this is factored in an dividend is paid like it has for over 100 years which of course varies from year to year but is much higher than any 5 year GIC that can be bought.

Why is this generally not talked about? Having consistent returns is boring when you hear someone making a killing in the stock market. The problem is sometimes the returns can disappear in a matter of weeks wiping out gains that took years to build up. What is more important steady positive returns every year no matter what or being exposed to the market like we have had so far? The features of tax sheltered money and pulling money out in a tax free manner is not possible in an open account or a registered account like a RRSP. Even the new TFSA (tax free savings account) while excellent limits you to $5,000 per year plus it offers no death benefit. With life insurance under the tax act money accumulating (within certain limits) can grow tax free.

What if I am uninsurable?

Case study: Father is 50 years old and not insurable or highly rated. He has a daughter who is 23 years old and in good health. Money can go into her policy, but the father is the owner. He would like to have some tax free income starting at age 70. he puts in $20,000 per year for 20 years. At age 70 he pulls out $28,500 per year until his death at age 85. The cash value of the policy which includes the accumulated dividends is $1,110,726 this goes to his daughter at his death. She still a insurance policy on her life of over $1,000,0000 at age 57 no additional premiums need to be paid by here for the rest of her life. Assuming she dies at age 85 the insurance pays out over $2,000,000. Both father and daughter win.

Please call me for your own illustration or situation.