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230: The Secret Weapon of the Wealthy!

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Buck: Welcome back to the show everyone. Today my guest on Wealth Formula Podcast, well they are very well known to most of our Wealth Formula community. We’ve got Christian Allen and Rod Zabriskie who are our Wealth Formula Banking and Velocity Plus and all these other permanent insurance product representatives who help facilitate all those things and have done business with an awful lot of you and hopefully will continue to do so because believe it or not I think that these investments in permanent life insurance could be the most profitable investment you can make and the single best financial position you can take in your life and for the life of your heirs. Now that’s a big big big statement. So let me start with that Christian and Rod either one of you agree/disagree tell me what do you make of that enormous comment that I just made?

Christian: Yeah well I’ll jump in. This is Christian. Thanks for having us on again Buck we love to be here. So I think the answer to your question is a pretty emphatic yes especially given the economic conditions that we’re in right so not only do we have you know opportunities, where we can leverage these policies in really powerful impactful ways that can create you know all sorts of retirement income or enhance our investing the other thing it could do, is just be you know are saving grace from market ups and downs. And so you know when you kind of combine all of the things that they do I’m certainly biased but I believe it’s certainly one of the most impactful financial vehicles that someone can use in their world.

Buck: Yeah and you know I say that because I’m trying to you know I this topic on its surface is not particularly sexy, you know life insurance, you know I mean it doesn’t sound like that sexy but you know so I thought it was important for me to say that initially just so that people don’t tune out because I think the risk here is tuning out too soon because I feel like I missed out probably on a decade of value by doing this. So let’s turn completely back to basics here.

Rod: Sorry can I just throw one more one thought out of there and I think it has a lot to do with your formula right with the Wealth Formula because the policies by themselves don’t necessarily give you all of that value right it’s when you use it in conjunction with principles like cash flow and leverage and velocity and these just these core principles that bring them to life and just make what you are and will be doing better.

Buck: Let’s go back to basics though because since we’ve last had you guys on the show I mean we have so many more listeners, we have so many new members of our community and our investor club etc. One of the things that we got to make sure is that we don’t talk past people because for again for years I remember hearing commercials on these concepts and being like what bank on yourself what does that even mean? I don’t even understand what that means right? So let’s go back to basics what are the different kinds of life insurance out there in the first place just you know 1000 foot view down.

Christian: Okay I can jump in on this. So basically we want to break it down into three camps. Actually let’s break it down into two camps first we have permanent life insurance and term insurance. Term insurance is what it sounds like I pay an insurance premium if I die during the life of that term then the insurance company pays a death benefit to whoever that policy is assigned to go to afterwards.

Buck: So you’re sort of renting insurance for a period of time with an expiration on it?

Christian: Yeah that’s exactly right which by the way can be incredibly valuable and important so we won’t even diminish not diminishing the value of it because it has a super impactful role sure so then we take we go over to the permanent insurance side. And it’s just designed to be in somebody’s you know designed to be there for the rest of the person’s life. And in its kind of most simplistic form the idea is just to make sure that if I die at you know 42 or 92 that insurance is in place I’m going to cover me for whatever needs I have now that doesn’t get into really what we do with it but from just a purely simplistic standpoint those are the real the two types and then they take a little bit of a turn and they add this couple different types of permanent insurance which is universal life whole life and variable universal life and maybe I’ll break those down completely but just a really quick difference between the three, whole life is completely fixed so we know the returns that we’re getting, it’s really the crediting method or the way that we earn interest in the policy that separates them. So like I say in whole life it’s a combination of guaranteed interest rate and dividends and then inside of a universal life policy it’s going to be an interest rate crediting method and if that’s in a variable policy then that could just be market-based perfOrmance and if that’s in a fixed universal life or an index universal life it’s going to be based on a crediting method. And so in our world we traditionally use whole life when we’re working with Wealth Formula Banking, we can talk about some of the reasons why and then when we get into leveraging the policies to say like massively increase retirement income in that world we’re generally using index universal life. So hopefully that at least gives us a baseline.

Buck: Yeah and we’re going to jump into those in more detail but I think the thing that I wanted to be you know I mean literally if you are brand new to this idea and all you know is what I knew when I came out of residency what people told me you know what they used to tell so what about life insurance guys what should I do with life insurance and all of the other guys in the practice quickly would say the young guys especially not the older guys notably would say well that’s a no-brainer buy term and invest the difference right that’s what they said that’s the quote buy term and invest the difference in other words don’t buy anything permanent. And then of course that is reinforced by well at you know in the general public you’ve got guys like Dave Ramsey or even you know Suze Orman they tell you all to stay away from anything whole life related and then of course you know there’s the whole physician community like you know has got their own voices out there who are constantly you know dogging on these concepts right? So I didn’t doubt this concept of buy term and invest the difference until I noticed something and that was that you know even though these young professional types were avoiding the permanent side of insurance in any sort of way you know as a business guy started noticing that my higher net worth friends and colleagues were actually and in fact the richer they were the more involved with these things they were and they were involved with things that were called you know whether they were called cash flow banking or concepts called LERPS or life insurance retirement plans or I started hearing terms like premium finance and private placement life insurance. So here I am in this crossroads where well gosh Suze Orman and Dave Ramsey and the physician guys are all saying they shouldn’t do this and they’re saying it’s stupid advice and all of a sudden these super rich people they’re all using these concepts. So help me understand, help us understand this dissonance between the advice that the professional class like doctors are getting and the advice that obviously the ultra wealthy are getting and I can assure you they are not getting bad advice. So help me understand that, help everyone understand that because that is something that you have to get over when you start going down this road because there’s this strange conventional wisdom that is frankly just BS.

Rod: Yeah so I think that the place to start is just to say that the way that life insurance is used in those specific strategies like you’re talking about is exactly that it’s within a strategy. So life insurance by itself if the only thing I’m looking for is a death benefit then that probably makes the the conversation a little simpler right but when we get into situations like people who invest in real estate and other cash flow types of investments we’re talking about people who are building a net worth to a point where they need to start worrying about the estate tax planning when we’re you know meeting with people who like to use leverage already in a lot of ways in their life and we can show them some really creative ways to to use life insurance and leverage and just create much better results in their world then we’re just getting into a realm where we’re saying okay let’s just understand the tool for what it is and use it in the ways that we can create the most benefit right and part of that comes because it has tax some special tax treatment given to it and that’s been in existence since the income tax was created right you know the influential people at the time placed a benefit on people who own permanent life insurance products and so generally speaking when we put money into these policies we’re putting after tax dollars but everything that comes back out whether it’s while I’m living or when I die it’s all going to come back out tax-free and so even that by itself opens up the door to a lot of different opportunities that people if they understood even just that one fact might be a little more open to it.

Buck: What’s the motivation though, there’s always a financial motivation like is it just the standard way of setting up permanent life for you know Joe Doctor is you know just a ripoff and and you know because they’re really just trying to maximize commissions and they’re not really trying to create a strategy is that why it’s bad? Explain that a little bit.

Rod: Yeah great question and that’s I think that does get down to the heart of you know when Dave Ramsey or Suze Orman or some of these other gurus speak against whole life insurance or any of these permanent life insurance products generally that is what they’re speaking against is the vanilla form that’s just put out there hey you know put money into this and build the cash value and etc whereas when we talk about it in the context of these specific strategies that the wealthy use it’s a very different conversation we’re creating a very different type of policy that is maximized toward what we want right the living benefits the growth of the the cash inside of the policy and access to that cash etc again we’ll get into more details as we talk maybe about some of the specific strategies but but there are just things we can do with life insurance especially when it’s created in conjunction with that strategy then we can just do very different things with it.

Christian: Yeah really so one of the things that I think ends up happening is that when the gurus and when a lot of people are considering what they would like or not like out of life insurance they start considering it as comparing it to like a traditional investment right and so that’s so that ends up being the first mistake like in the ways that we use these policies the the underlying policy alone is never the is never the end all be all right we have to use other things in conjunction with that to really be able to grab out all of the value. And so it’s not that traditional policies these vanilla policies are bad they just you know if you’re comparing it and saying hey I’m expecting to get a 10% return inside of my vanilla life insurance policy you’re not going to get that right.

Buck: Yeah so bottom line is here’s the deal this is the way I think I think you should people should look at this as Christian and Rod are saying effectively the reason why these things have gotten bad wraps is first they’re not structured optimally for for what we want second the way to use these things optimally is as a tool to enhance your investments they are not the investment themselves they are tools to make your investments better to supercharge them and so let’s start talking about that because that’s really where for me the aha moment starts coming in. So you know and and these concepts are not that new I mean I think even since the it was in 1980s or 90s and Nelson Nash wrote the infinite banking book so there’s a lot of products out there one of the core products that we love is in what we call Wealth Formula Banking this is similar to the Nelson Nash concept although this is really further optimized quite a bit even from that would you who want to describe that for us?

Rod: Yeah I can jump on that. So what for Wealth Formula Banking as you said originally Nelson Nash called it infinite banking there are other terms for it cash flow investing for cash flow banking and in other contexts we call it the investment optimizer. So anyway the idea behind infinite banking is that we’re building up cash value inside of our whole life insurance policy we’re getting the tax benefits we talked about we’re getting a very consistent growth on that cash and we have access to it in the form of a loan. So again if you’re new to this concept I’m gonna I’m gonna do my best to in kind of this brief context explain it but you can learn more and go to the wealthformulabanking.com website we have a really in-depth webinar there that you can take a look at but the idea is that when we access that cash and because we’re able to do it in the form of a loan then we have that cash we’re going to go out and use it in this context we’re using it for investing real estate businesses notes whatever that might be some sort of cash flow investing and because we used we accessed that money in the form of a loan our underlying account value stays there and continues to grow on this path of earning the guaranteed interest plus the dividend and so we’re quite literally creating value in two places at the same time. And so maybe to add some context between what the traditional infinite banking concept is doing versus what we’re talking about here is you probably hear people talk about infinite banking and in a lot of different ways right hey go buy all of your cars through infinite banking use it to finance your trips etc right which which is fine you can do all of those things the way that we talk about it though is we are hyper focused on using in conjunction with cash flow investing we want to use it in ways that where we’re creating value in multiple places at the same time very directly and in this case using the cash flow that we create through that investing to funnel that right back into the policy and regenerating what we basically call it an opportunity fund we’re general regenerating the opportunity fund so we can take a loan and go back out and do it again so it creates this this cycle in conjunction with the investing that people are already doing and will be doing in the future and we’re just making it better.

Buck: So let me just reiterate what Rod’s saying because I’m good at dumbing things down and making them easy I think. So here’s the concept that I think was really just the aha moment for me on this was okay so you can put say you had and by the way there’s not like a minimum on this per se this is not a product just for you know high net worth individuals although you know the more you can put in the stuff the better but so the concept was basically as I understood it was okay well let’s see you could take a hundred thousand dollars in a year if you wanted to and put this in a policy within just a few months the majority of that you could even start to access to loan yourself money to invest somewhere else okay. So initially when you hear that you’re like okay well why would you even bother putting it in there if you’re just gonna borrow it back anyway? Well here’s the concept, so I put the money in and it’s growing at say it’s like five and a half percent right that’s that’s a you know fixed interest plus dividends dividends aren’t supposed to be guaranteed but in these companies generally they’ve been get you know they’ve been distributing these dividends non-stop since the civil war so it’s pretty darn guaranteed okay so I’m not I’m gonna say that even though it’s not the case but the way I see it if something’s been every year since the civil war through through you know hyperinflation of the 80s through the through the great depression then to me that’s that’s a pretty good track record. So okay making five five and a half percent whatever on that and I’m not saying that’s gonna be for everybody but now your money’s growing at a compounding rate there now if you don’t know the difference between simple interest and compounding interest look it up it’s a big difference. So your money’s growing there compounding interest,fantastic. Okay so now I borrow it but here’s the beauty of this is why it’s different from say like a home equity line of credit. So I’m borrowing money and effectively the cash value in my policy is not getting removed from the policy, it’s acting as collateral in effect and I’m borrowing money from the insurance company. Now the insurance company, they may even charge me who knows maybe the same rate of interest that my money’s growing at but the difference is when they charge me that interest they’re charging me simple interest and my money continues to stay in my account and it’s growing at a compounding interest. Now the divergence of that is really the huge deal here over a period of time and so you can take that money that you borrowed and you can invest it into something else and so now your money’s growing at this compounding rate you’re paying back at a simple rate and your money is then invested into something else and in fact you’ve created a return in two places at the same time that’s the magic of this. Did I say anything wrong?

Rod: No everything you said was on par. And so really what it ends up being when we meet up with a lot of people who are already cash flow investors and they’ve been doing this typically what they’re doing is they’re just flowing that money in and out of a savings account or a money market account right they build up the account, they take that money out, they go and invest it, it creates some cash flow, they flow that back into the savings account, it builds back up and they go and do it again right. In this case what we’re doing is we’re just replacing that with this this specially designed life insurance policy so that we can capture growth right you’re not getting any growth in the savings account right to begin with and then and then the growth that you do capture it’s tax-free and then this difference between simple and compound this arbitrage that we’re able to create just we’re able to create much more efficiency in the system so that you know that cash flow investor doesn’t have to feel like hey when my money’s sitting on the sidelines it’s just not doing anything for me right I just have these these just lack of efficiencies in the system we’re we’re just building a process that takes care of those.

Buck: So I think that’s for me was the big aha moment is realizing that this whole double dipping concept this idea of leveraging because ultimately what we talk about in Wealth Formula in our you know our mathematical formula here has always been you know wealth is equal to a function of mass meaning how many you know how much money you invest times a product of velocity which is how quickly you get your money back in leverage and so in effect what we’re doing here is we’re using the life insurance concept the product to add additional layers of leverage to our investments and of course that results in leveraged appreciation and so if you I think Rod goes through a few of these examples at wealthformulabanking.com if you look at the webinar but in effect the the numbers that you can get in terms of increasing your total return on capital is pretty astounding and all you did was drag it through this policy before investing it that’s all you did really and then you created an additional layer of you know a benefit for your heirs in the event that you died so what am I missing here what am I missing?

Christian:  I think you nailed it in fact we show an example on the webinar where someone just puts in when you’re contributing a hundred thousand dollars and every five years they go into a new investment opportunity and we show the difference being over a 20-year time frame over a million dollars so again when you look at it you say okay like I could just do what I’m doing through my savings account or I could make this adjustment I could literally have a million dollars more but all along the way I’ve had creditor protection and tax benefits and all these other things that go along with it. So from that standpoint it’s just incredibly valuable and multi-purpose.

Buck: Yeah and you know there’s so many different ways to look at banking too and I’ve sort of evolved in many ways too initially looking at it from that you know double dipping perspective and now I you know I look at it as you know an ongoing source of liquidity a lot of real estate investors don’t have that but if you’re going to have money sitting somewhere and it’s growing in a you know a creditor protected account tax-free you know five and a half percent or five percent or whatever it is compare that to the bank I mean there’s just so many additional benefits to it but let’s switch gears just a little bit because so we were doing this and you know I got involved with you guys that helped me really understand this and obviously you know I drink the kool-aid on this folks I am you know I have policies myself and but in that process you know I started learning more about some of the other products and one thing that I found was there’s something called indexed universal life which is an interesting concept and actually Tony Robbins brings it up very briefly in his Money book and then he never explains it he talks about it he just kind of says  what if there was that and then he never says anything about it well that’s what this is in a nutshell but then add leverage. So still is sort of crazy to me that this is something that works but okay well why don’t one of you explain this concept because it’s again it’s a little mind-boggling when you hear about it for the first time we call it by the way we call it Velocity Plus and there’s a webinar on this on wealthformulabanking.com as well.

Christian: So you hit on it but most people already are familiar with this with the idea of leverage and some people have heard about this index universal life thing I’ll hit on that for a second in just a minute but what I want to just throw out there first is a basic understanding of really what it is and so put simply it’s utilizing leverage to dramatically accelerate income at a future point so this is a product this is a strategy that’s going to be more along the lines of a comparison between like a traditional retirement account because it’s a longer term a longer-term product but what we’re doing is we’re max maximum funding the index universal life policy which like you said will have a capital floor basically it’s let’s just use the numbers you said let’s say 10 is my cap zero is my floor put simply if the market goes up 10 percent or more I get 10 the market’s down I just get zero in that year so like you said we don’t lose money but in that given year we may not gain it. So now what we’re going to do is we’re going to take that underlying vehicle and we’re going to add leverage to it just like we would in if we were purchasing real estate and we call this concept conservative leverage so we’re going to add this layer where when I put money into Velocity Plus I might put in let’s just throw some example numbers if I put in 50,000 I would put that 50,000 in for five years the bank which is which is going to be the leverage component is going to contribute the same 50,000 for those first five years and then I’m just gonna stop as the investor as the policyholder I stop the bank continues to fund that for another 10 years so what’s happened for every dollar I’ve put in they’re gonna put in about three. And what’s really amazing about the concept is that just by creating an arbitrage between interest earned and interest paid with the addition of leverage we can we can bring that out and draw huge amounts of income. So I’ll just give you a quick income example so if I was a let’s just say a 40 year old and I started to get into the concept I could put in 50,000 a year for five years so a total of 250 thousand then from the ages of 65 to 90 I could take out 150 grand a year tax free for a total of 3.9 million dollars. So I put 250 in I get 3.9 million out and that’s because we’re utilizing the life insurance policy the time value of money and leverage so those three components.

Buck: This is a you might wonder like how do you get those numbers those numbers sound kind of downright crazy right and let me explain this because I think again the leverage is key as real estate investors think about the return that you’re getting on the market whether that’s seven eight percent or you know ten percent in this case was the cap although you know that’s that’s different right sometimes it’s higher sometimes it’s lower but let’s use effectively what that is is that’s our cap rate right that’s our cap rate and and then so then we add leverage to it. So if you have three to one leverage and you have seven percent gain and I’m using that as an average of the S&P conservative average of the last couple decades or whatever per year that seven percent will actually result because of the leverage in an increase in a yield of approximately just under 20% for a given year. So now imagine that is again now it’s compounding too right this is compounding that’s why this thing is so dang powerful and so the question to me that comes to my mind is why wouldn’t you if you have money in the market anyway and you’re counting on the S&P 500 why won’t you do it this way instead of just having money in the market because here because you’ve got the cap in the floor you’ve got effectively guard rails okay you might be saying okay well I’m giving up some of that if I have a cap at 10 not really because if you have a seven percent gain at three to one that’s like 20 percent how often does the market go up 20 in in a year it does but not very often right so you’ve got a cap and a floor you go below zero you’re not going to end up losing half your you know retirement money and then the cap is really not even so much of a cap because with the inter because of the leverage you can take a lot of that gain and probably more than the market’s going to give you but definitely more than the market’s going to give you so then why would you not want to have exposure to the market with guardrails like that and leverage to me it sounds like kind of a little bit of a no-brainer but so what are the downsides here what are we not seeing I mean has this been stress tested I know the answer to this by the way but tell us because again this is one of those things that I mean listen I just think you know there are a few of these things where to me it’s like this sounds like awfully you know maybe a safer way than to just have your money sitting in your typical you know brokerage account.

Christian: So maybe I’ll take a quick shot of this and Rod you can add to to anything I miss but I think when people learn about it does become a lot more of a no-brainer especially when you’re comparing it to like traditional retirement accounts and so this is something that has been really fun to see take hold because a lot of your listeners have been actively we’ve been working with a lot of listeners to help put this into place and again really it’s about accelerating retirement bringing that okay so Buck here’s a good way to think of it you talk a lot about risk-adjusted return and I don’t have exact risk-adjusted return numbers here but what I can tell you is that when you compare the when you compare that concept of how much risk I’m taking versus how much return I can get the utilizing Velocity Plus just far exceeds what you can get in the market and so you’re you’re literally taking less risk and have more upside so from that standpoint it’s really great. Now what are the barriers, maybe that’s the question. I would say there’s a couple of things that throw people off one of them is just going back to what we’ve talked about it’s life insurance right we’re utilizing index universal life and some people just can’t get through that you know all of the noise from wall street or from the gurus or whatever suggesting that life insurance can be really valuable right it’s just it just some people can’t get through it. And then I think the other thing is that it’s something that’s just so new. So now it’s not just life insurance but it’s also adding leverage it’s a new concept but here’s our experience, over time as people learn about it it’s just continuing to grab hold more and more and I think that you probably find a lot of listeners who really just genuinely feel like it’s a no-brainer.

Buck: Yeah I mean I think you know there this by the way is a concept that’s in and of itself is not new because I mentioned earlier that I started hearing about some high net worth friends using various insurance products and one of them one of one of the early exposures I had was a friend who was involved with the I guess the big sister or big brother of Velocity Plus which is where this thing came from which is a more a premium finance IUL that you know isn’t just three to one but could potentially even be infinite. Do you want to talk a little bit about that because we do have people I mean you have to have a certain amount of net worth or income to do that but that’s something that as you know we’re you and I you guys and me are talking about this year for my personal situation. I actually have a ton of what’s called convertible term insurance in other words it’s term but I can convert it into permanent so I’m thinking about doing one of these premium finance you know high leverage IUL’s. Maybe you guys could talk a little bit about that because and who would potentially qualify for something like that?

Rod: Yeah I can jump in on that one so really what we’ve been talking about up to this point with Velocity Plus fits in that category of premium finance. In this case it’s almost like an off-the-shelf product that we’re plugging into that’s already been all worked out with the banks it’s really a streamlined process for getting people involved with premium finance and what you’re talking about.

Buck: Velocity Plus is. Is there a minimum sort of income level that you need typically for banks to qualify you for that?

Rod: Yeah that so really that one’s for anyone who makes over a hundred thousand dollars a year.

Buck: So most of our listeners are going to be qualified for sure.

Rod: Yeah. So now when we expand that and we say okay what’s the broader picture of premium finance? Well for people who who have a net worth generally it’s over about five million dollars of your net worth.

Buck: Or if you’re making like a million bucks a year right you might be new relatively new you’d be making a million two million bucks a year would you also qualify?

Rod: So yes I mean we can we can work those out with with and so again in this case basically we’re doing is we’re creating a one-off right rather with Velocity Plus it’s kind of a pooled concept we’re bringing a bunch of different people together for the sake of getting better terms on the loan in this case we’re we’re putting an individual case together and saying okay we see the value of using leverage in conjunction with this sort of policy this index universal life policy and so we’re going to custom build the strategy for that individual. In other words how much money is going into the policy of what’s going into the policy how much of that is leveraged versus how much is going to go in that from out of pocket and basically it’s a blank slate we get to custom design how we’re going to do that and so like you said it could be all the way up to the level where you’re financing 100 of the money going into that policy and the way that you could do that or the way that really do any of this is that we have the ability to use as collateral some other asset in that person’s world. So as an example let’s say that they have a certain amount of money that’s sitting in a brokerage account and it’s the plan is for it to stay there and just continue to do its thing the long-term investment strategy then why not let it do its thing and use it as collateral leverage it to create this brand new asset and so again it’s accomplishing both of those aims at the same time and so that’s what makes it the difference right that’s why we can have a situation where the money’s going to the policy and most if not all of that money is coming through the leverage from the bank.

Buck: So which is if you think about it and the way I’ve thought about this kind of crazy almost right because what you’re effectively talking about is why people like the rich are getting richer and all that. I mean look at this concept basically what you’re saying here is that you are going to take money you already have in the bank uses collateral then create a multi-million dollar asset out of thin air. I mean that’s basically what this thing is right because what you’re doing is okay you’re saying okay I mean you could you could have a million dollar year premium in theory and I don’t know I think there might be somebody in the you know a couple people in the group were getting close to that and in theory a few of them a few of them and they they might be putting in a hundred grand a year maybe maybe not and in the meantime they’re building this asset that over the course of you know 10 15 years.

Rod: When we initially projected out say 15 years we’re probably talking 20 million dollars of death benefit maybe four or five million dollars of cash and when you project it out to a person’s life we’re talking about you know 100 million dollars it and again it’s something like you said can be created just by utilizing an asset like we like to call them lazy assets something that’s you know sit is like a buy and hold situation and now like you said you can create this map and it’s and it’s like you said the whole rich is getting richer this is generational wealth this is how people really take things to the next level.

Buck: Yeah I mean it it’s sort of again mind-boggling and the number of you I know qualify it for this I again am in the process of converting you know a convertible term to do this this year I just think it’s something for a lot of you to think about because all it’s doing is it’s taking money that you already have and using it as collateral. And the other thing is that understand that the collateral is not necessarily as much as you would think right that’s the other thing about it is so if you have if you were you know if you’re doing a million dollar a year you know zero you put no money in at all I remember you guys had some projections for me and like sort of maximum collateral amounts and stuff like that what was that?

Christian: Yeah so I’ll talk about this on a couple of different levels. So on its base level when we just do our reasonable projections on assumptions as far as the market and that kind of thing then your total collateral might be about that so again if you’re doing a million dollars a year for say 10 years then your maximum collateral might be about say 900 000 or a million. Now one thing to clarify is that is the maximum as well so that might mean in the first few years it would be significantly less than that but that would be like the high water mark.

Buck: Yeah right and by the way if you put 100 grand a year in into that instead of making it you know purely a hundred percent bank leverage all of a sudden that may drop substantially.

Rod: Yeah exactly right so and then like you said earlier you know we do these stress tests we want to make sure that we know not just not just what’s a reasonable projection and what to expect in terms of how the account grows and how much income it creates down the road or how much death benefit creates for this estate planning thing but if we were to have a great depression for example not just a year or a couple of years like we would might normally see with what you might think of as you know typical market volatility but you know again a great depression five years in a row 9 out of 12 years then we’re going to stress test that make sure that we understand how that impacts the strategy and the on the flip side because interest rates matter on the loan side then we’re going to do stress testing against the 1980s when interest rates were quite high for a long period of time so that we can understand how does the how does our strategy hold up in that scenario so again we don’t just throw out the rosy numbers and just say hey we hope this is what it’s going to be but we all are on the same page when we when we talk through this to say okay this is actually probably realistic on what it’s going to be but let’s also look at you know kind of worst case and from a historical standpoint what that would look like as well.

Buck: Just just to clarify too with Velocity Plus which is the sort of in a box program there’s no required collateral either which is also kind of nice. One thing that people get sort of confused on and I think it’s useful to address is we keep talking about you know the listen if you haven’t figured it out by now these policies these these you know these strategies that we’re using as much as they are actually technically life insurance we’re really talking about creating wealth for you and in your life right. So say you do you know Velocity Plus you or you do you know some premium finance thing and you accumulated a bunch of cash, you’ve got several million dollars 10 15 years down the road of cash value and you want to use it to retire. So how does one get the money out and why is it tax free and how does that all work?

Rod: Yeah so to begin with so how does one get the money? Out a little bit ago we talked about in Wealth Formula Banking we use this idea of a loan against the cash value right. In premium finance we do the same thing again we want to maximize our use of leverage so when it comes time to take income we’re not actually removing any cash out of your account we’re going to take a policy loan against the cash value and and that becomes your income and someone might be saying Rod that sounds crazy what I’m taking a loan in retirement and that’s my income and the idea is that because your cash in your account stays there and continues to compound even while you’ve taken the loan against it then we’ve created the arbitrage again right so I have on average in these IUL products I’m going to be earning more on the compounding growth side than I will in my loan interest accumulation side right so to begin with. And then number two is I always have a much higher value in my cash value than I have on my loan balance. And so over time we actually end up outpacing the growth outpacing any kind of accumulation on your loan balance side with the growth that we’re seeing in the in the cash value side so what does that mean right at the end of the day if you’re familiar with the traditional world of of retirement income if you build up say you know an account in a brokerage or an IRA type of thing and you approach your broker and he says oh yeah you can take four percent right but I know you’ve spent time on the show talking about the four percent role and how it’s just silly at its face right yeah but even given that let’s just take four percent right even though there are a lot of brokers that wouldn’t even give you that much so let’s say you you’ve accumulated you know a couple million dollars inside of that account they’re saying okay you can take 80 000 a year on that right in this case inside of a premium financed policy let’s say you have the same net difference of two million dollars between what you’ve accumulated on your cash value versus what you have on your loan okay so you have a net difference of two million dollars but we’re not going to say four percent okay when you run the numbers and because of this this arbitrage that we’re creating it actually becomes more like 10 to 15 and so for the same two million dollars we can multiply that income by three or four times what the traditional world is doing and so like Christian said earlier we often use the word accelerate we can just accelerate that income to a level that you just can’t reach when you don’t use the same principles of leverage and the things that we’re able to use inside of the strategy.

Buck: So bottom line is folks this is what it means is you’re taking loans that you never have to pay back that’s really what it is. Well the death benefit pays it back yeah so we don’t pay it back right but your death benefit is substantially higher than you know the income that you’re going to take out of there so you’re going to it’s going to get paid back and that’s why when you are living on the loan you don’t you never get taxed on the loan right I mean so that’s basically why it’s tax-free income. So last question okay you know we’ve been doing this you guys have been doing this for a while lots of clients we’ve got a lot of the high net worth people you know we’ve got some big hitters in our group too right talk about some of the additional creative stuff that they might be doing that might be of interest to some people. 

Christian: So I have a couple thoughts on that with some. There’s been a few different concepts and different situations that make sense. So one of the challenges that people have is they have and especially this happens in our group we have people who accumulate a lot of money and say retirement accounts and then they kind of become more comfortable let’s say with the alternative investing space and now they’re kind of saying okay well what do I do with this right. So one strategy that we’ve been that we’ve been teaching people is a way to help in an incredibly tax efficient way bring money out of the out of IRAs so that it can be utilized in you know a variety of other ways and there’s some really cool things that we do with it I don’t know that it will be super helpful to get into it but if you’re someone that has a bunch of IRA money and you’re thinking well what do I need what what am I going to do with this that’s a conversation we can definitely have. One of the other things that we focus on is for certain situations we’ll help people with more when they’re in their peak earning years look for tax deductions. For example we talk a lot about utilizing captive insurance in conjunction with premium finance and we can extend that further to things like defined benefit plans and cash balance plans and things like that. So there’s really a variety of options and things at the end of the day what we want to do is help your high income listeners you know become high net worth and these products as you can tell are all and strategies are all really designed to do exactly that.

Buck: Yeah good stuff guys I mean listen I am a massive believer in this stuff as you know you know I drink the kool-aid I’m doing the stuff you know I believe in it and you know and one one thing that we actually did not really address in this which is sort of the irony of it all is to me that the insurance element of this the life insurances I am you know just celebrated another birthday into late 40s now I guess is that you know eventually you’re going to die whether you like to think about that or not and even though that this product is has so many real value propositions for wealth creation while you’re living and also has one additional benefit that to me is great which is if you screw all of your other investments up and you die at least this one’s gonna pay out and you won’t leave your family high and dry. So think about that I think it’s absolutely something that people should be considering you know the higher net worth you are you know the more you should be looking at these products and these different paradigms if you’re a business owner if you’re an independent contractor there’s just so many things that’s available to you we’re just really skimming the surface here you know we’ll do webinars again and and try to get some more examples in place but a lot of people have been asking about you know what is this Wealth Formula Banking and so here it is this is it Velocity Plus etc and so if you are interested in looking at you know some of these concepts in more detail first go to wealthformulabanking.com there’s some really good webinars there and that’s also where you can contact Christian and Rod if you wanna learn a little bit more you wanna run some illustrations with them explore some ideas and pretty much these guys are the best in the business when it comes to this and that’s why so I work with them. So Christian Rod thanks again for being on Wealth Formula Podcast. We’ll be right back.