The Secret $30 Billion

Martin Levy of Corporate Strategies, Inc. talks about McDonald’s, Disneyland, Foster Farms, and the $30B on Wells Fargo’s balance sheet

October 11, 2017

Would you believe that the happiest place on earth, home to Mickey, Minnie, Donald and Goofy, exists because of life insurance? Animator Walt Disney, whose 1928 Steamboat Willie animated short launched the career of the mouse known around the world, needed a bank loan to finance his dream of opening a theme park. Turned down by his bank for a basic business loan, Disney turned to the accumulated value of a life insurance policy, taking out a policy loan. The proceeds from the policy were used to create the happiest place on earth, Disneyland, California.

In 1930, Max Foster applied the same thinking by using the cash values of his life insurance policy to purchase an 80-acre farm in Modesto, Calif., which would become Foster Farms, one of the largest chicken providers in the United States.

[To read more of Martin Levy’s thought leadership click here]

Alot has changed since the days of Walt Disney and Max Foster, one thing hasn’t changed – the favorable tax treatment of life insurance cash accumulation and how it can help people use the strategies that ultra-wealthy people use to create tax-free income.

There’s also a new twist on life insurance – one that allows for market sensitive investing. It allows for investing in the market without taking losses. Zero is your hero. When the market turns down, as it inevitably does, you never lose, period.

Too good to be true?

Not according to the University of Michigan’s head coach Jim Harbaugh. In August 2016, the University of Michigan helped Harbaugh become the top-paid college football coach in the nation (according to USA Today figures) by creating a deferred compensation package utilizing a type of cash value life insurance called Indexed Universal Life Insurance (IUL).

Not according to Wells Fargo, either. Would you believe that Wells Fargo Bank, the nation’s third largest financial institution, carries over $30B in cash values of life insurance on their corporate books?

What’s the story behind this asset and why are the wealthy using it?

An IUL is a cash value policy that has both a death benefit and an accumulation element. In an IUL, the investments are not placed directly in the market, where they would be subject to a loss. Rather, they are put into a strategy that mirrors an index such as the S&P 500, which allows the participant to realize all, or most of, the gains in the market. These gains are then locked in to protect against potential losses.

Just like in Harbaugh’s case, IULs appeal to professionals and business owners because of the advantages they provide. IULs allow cash value within the policy to grow tax-free. IULs are funded with post-tax dollars which allow clients to withdraw money tax-free at any age, and create tax-free (off tax return) income at a future date.

When compared to an IRA or a 401(k), universal life insurance (IULs) provides more flexibility. Unlike IRAs and 401(k)s, there is no limit on how much money can be added annually.

In addition, when compared to an IRA or a 401(k), IULs provide more flexibility. Unlike IRAs and 401(k)s, there is no limit on how much money can be added annually, as long as the added cash does not create a Modified Endowment Contract (MEC), which is taxable. IULs allow for a high cash value at the beginning of the policy. There are no restrictions on when the money can be taken out, unlike an IRA.

Along with tax-free wealth building, IULs provide a source of financial security to the family in the event of death or disability. In an event of the death of the policyholder, the death benefit is received tax-free by the beneficiary of the policy in a lump sum.

In the case of coach Harbaugh, an IUL was used to create millions in tax-free retirement. This was possible due to the growth of the cash value inside of the policy that increased his retirement funds, which are accessible tax-free. Upon being hired at Michigan, Harbaugh entered an agreement in which the premium, cash value and death benefit is split between two parties. This “split-dollar” agreement was funded by a cash value life insurance policy, an IUL.

For Wells Fargo, the company uses life insurance to fund various compensation arrangements for their key executives and retirees. The same is true for Bank of America. What do these banks know that professionals can use to create wealth?

IULs are a popular choice among those who would like the ups of the markets without the downs, as well as protection for their family after death. This makes IULs a comprehensive and flexible wealth building option, one that can be tailored to each person’s financial plan.

People like Harbaugh are using the most advanced planning techniques and have access to the sharpest financial advisors in the USA. Ask your insurance advisor to help you design an IUL for tax-free accumulation. No one ever had too much tax-free income at any time

[For more on Corporate Strategie’s approach to Insurance click here]

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