It is common knowledge that the rich tend to keep more of the money they make than the average wage earner. Therefore, is behooves those who desire to keep more of the money they make to follow the steps which the rich have used for centuries to ensure that what they make is kept and not lost to taxes, litigation or usury.
Wealthy individuals reach out to us here at Life Benefits, because they understand the Life Benefits Formula and want to implement the concepts contained in this formula to build sustainable wealth. They understand that even though they have mastered the ability to accumulate substantial assets, those assets can become a liability to them and will definitely become an unsurpassable liability for their estate if they don’t take proper action today. The Life Benefits Formula contains the logical steps you need to take in order to protect and secure the assets you have accumulated from being taxed in excess, protected from litigation and kept from the cost of usury. The sooner you take action, the better you will be able to protect your assets, and the larger the sustainability of your wealth will become.
Participating Whole Life insurance (PWLI) has been a financial tool used by the wealthy to protect their assets for centuries. By its very nature this type of life insurance is the golden exemption in the Internal Revenue Code (IRC) because this specific type of life insurance pre-dates the Internal Revenue Code and therefore provides protection which NO other financial tool or financial plan can come close to providing.
For example: A single premium PWLI policy purchased on a 45-year old male in standard health will increase the immediate assets he can pass tax free to whomever he wishes by 3.47 times. Thus a $100,000 single premium PWLI policy will have an immediate face value of $347,000, 100% of which will be passed tax free to the policyholder’s beneficiary(s).
But that’s not all. By the time this policyholder turns 67 his surrender value on this single premium policy will have more than doubled from what he paid for it 22 years earlier. Furthermore, by the time he turns 80 the surrender value will have more than tripled without him ever paying another penny in premium.
Between age 45 and the time of his death, this policyholder has access to the surrender value of this policy to do whatever he needs to do. He can:
It is important to know, surrender values which are greater than the cost basis of the single premium will be considered taxable income, if they are leveraged or surrendered. Furthermore, if the policy is surrendered prior to age 59 ½, then the IRS will assess a 10% penalty on any growth which has accumulated above and beyond the purchase price of the policy.
Ten pay PWLI policies are another tool the wealthy use to keep and protect their accumulated assets, avoid taxes, and help them from having to pay interest costs to uninterested third parties when they finance asset purchases. 10-pay PWLI policies are used by those who have determined to keep a specific amount each year over the next 10-years so that it will multiple tax free upon their death. Furthermore, they are guaranteed to have access to more money than what they paid for the insurance after the first 10 years.
Assuming the policyholder is again, a standard healthy 45-year old male, by age 56 the surrender values of a 10-pay policy would be greater than the 10-years of premiums paid. By age 67, surrender values would be 1.55 times greater than premiums paid over the first 10 years, and by age 80 surrender values would be in excess of 2.45 times the cost of premiums paid.
Some advantages of a 10-pay over a single pay PWLI policy are:
Surrender values in a 10-pay policy will continue to grow and remain 100% tax free and accessible to the policy holder as long as he is living. All while dividends paid to the PWLI policyholder will continue to increase the surrender values as well as face values, even while loans against the policy are outstanding. This last feature is helpful for those who understand tax law. A PWLI 10-pay, as well as the following PWLI policies, can actually create a tax advantage when using the money leveraged against these types of policies to fund normal business or investment expenses.
Another type of PWLI is one which allows the policyholder to add more to the premium in future years without having to go through the underwriting process again. For example, take our 45-year old standard male in average health who wants to start with $10,000 a year premium for the first 5 years but then wants to add an additional $2,500 to his premiums in years 6-12. In this case the policyholder has more surrender value in the policy in year 9 than what has been paid in premiums and the face value is 4.48 times greater than his cost basis in the same year.
As in the previous PWLI policies, the face value is 100% tax free for the beneficiaries, and the surrender values are totally accessible to the policyholder as long as he is living. Taxes will not be assessed on loans taken against the surrender values, and as long as surrendering the policy doesn’t pay out more to the policy holder than his cost basis, there will be no income to report to the IRS.
At age 57, 12 years after paying his first premium, this policyholder will no longer have premiums to pay. The face value in the following year will be reduced slightly ($376,804), and the surrender value will continue to grow annually. By age 67 surrender values will be $198,873 and possibly $238,895 with dividends. Of course, like all PWLI, the dividends will continue to increase the face value of the policy as long as it remains in force.
When our policyholder reaches age 80 his surrender values will have doubled his money compared to what he has paid for this policy. With dividends he may well have tripled his money. As with each of the above PWLI policies, the surrender value of this policy is totally assessable to the policyholder as long as he lives. This means that even if he spends all the money he paid for this policy, he will always leave more to his beneficiaries. And everything he does leave will be tax free, unencumbered and free from usury.
There are many, many other ways to structure PWLI policies. But let’s cover one more which is a common way the wealthy use to make sure that what have accumulated is not destroyed by taxes, litigation or usury.
For this PWLI policy design, let us again use our 45-year old male who is in standard health and just happens to be the sole beneficiary of his parents million-dollar life insurance payout. He wants to make sure that this inheritance is protected and will continue to grow, so he can pass even more on to his own children. Furthermore. he is willing and eager to add some of his own assets to the pot in order to make this happen.
In this example, our policyholder would keep the $1,000,000 in a guaranteed interest bearing account and use $79,000 each year from that account along with $41,000 of his own money over the first 10 years to build a sustainable policy which protects the million dollar insurance payout from his parents and builds upon it significantly.
Here are the details:
Remember, throughout this policyholder’s lifetime, he can access and use the surrender values just like in the previous examples, without facing income taxes or penalties. If he chooses to surrender the accumulated policy values, there would be NO income tax assessed against him, up to the cost basis.
As with all PWLI policies, the death benefit remains 100% tax free to his beneficiaries.
Years ago, in the book Winning Your Financial GAME, we reported that the wealthy never think either-or. They always think both. In other words, the wealthy always make sure that when they attain an asset, they keep most if not all the money they spent purchasing that asset. Unfortunately, the rest of the world is programed to think only about the cost. Each of us has to pay the price, but none of us have to eat the cost if we plan wisely and use PWLI to help us protect and build sustainable wealth like those who prosper do and have done for centuries.
If you want to know more about how to manage your money like the wealthy do and keep more of what you make. Click here or call us at 702-660-7000. We can help you structure and purchase the right PWLI policy, tailored for your needs, which will begin your journey of success. Furthermore, we will be here to serve and help you keep more of the money you make after you make your PWLI purchase because we understand that most people have never even heard about how the wealthy keep more of the money they make, let alone know how to put it into practice.
Dr. Tomas P. McFie
Most Americans depend on Social Security for retirement income. Even when people think they’re saving money, taxes, fees, investment losses and market volatility take most of their money away. Tom McFie is the founder of Life Benefits which helps people keep more of the money they make, so they can have financial peace of mind. His latest book, How to Build Sustainable Wealth, can be purchased here.