Monday, November 9, 2015

Questions From The Abyss On Infinite Banking

  • The following is from a recent inquiry I received about Infinite Banking.  Please note there are some answers that require a Plan Review Appointment (Step 3 of 4 in my process you can read about here.

    Email correspondence from an interested party:

    Some questions on my mind:
    1) The plan seems to be useful if the commercial interest rates are above 6%. It does not make any sense to borrow now at 6% when the home equity lines or cars are financed at about 2%?
    2) Reference is made to collecting interests on your own loans against the cash value, whereas in fact the insurance company is collecting the interest not the policy owner. It does not say how much is paid back as dividends in %? Can you state this dividend % paid for the current year?
    3) What are the cash values of a policy say $100,000 over the years and what are the annual payments to start it at the ages of 39, 45, 47 (for my daughters)?
    4) what is the lump sum payment for a senior policy at age 74 with $100,000 death benefits?
    5) the special acceleration rider is referenced many times. Is it part of this policy or do you have to pay for it extra?
    6) what is the guaranteed current % return on these policies?
    7) Most insurance companies do invest in Real Estate or stock/bond markets. How can they protect themselves from fluctuations in these markets to meet the minimum % return ? Would the non guaranteed divided payments fluctuate up and down or completely eliminated with the fluctuations/crash of these markets?
    8) Do you represent only one insurance company or can you offer policies from others if their current policies make more sense?

    Here are my answers:

    1. If you can find a cheaper alternative of financing that also works within your scheduled cashflow, then a good rule of thumb is to use the lowest cost of financing. I included the caveat of schedule cashflow because bank loans (Line of credit excluded although they can be frozen or reduced) require monthly payments with no exceptions. A policy loan on the other hand has total flexibility with regards to payments.
    2. Yes, there are resources that do not do a good job of explaining of where interest on loans get paid. All interest goes to the life insurance company. It counts as revenue for the company. At the end of the year, all company revenue from all investments, minus expenses, gets re-directed back to the policy holders in the form of a dividend. So while it is not direct, interest paid on policy loans does make it back to policyholders. I can show you a dividend history when we talk Thursday.
    3. We'll review all the numbers on Thursday and you'll have copies. Keep in mind the illustrations are projections given the current dividend environment which assumes that the dividend scale today (at all-time lows due to historically low interest rates) will always be historically low. By law, life insurance companies cannot assume higher dividend scales. They have project for all future years based on the past year. As a result, current illustration numbers are extremely conservative.
    4. I'll run the numbers for you on $100k as well for Thursday.
    5. I build it into the policy. It's the Paid Up Additions Rider. Most Whole Life policies do not have it because they are designed for Death Benefit only. It is the most important rider for this strategy.
    6. Policy contracts have guarantees of 3.5 to 4%. That's the standard. It is a linear growth rate meaning the guarantees are preset and do not compound each year. It's the dividends that will compound the growth on the contract.
    7. Great question. Typically 80% of a life insurance company's portfolio are investment grade corporate bonds that are held to maturity. Smaller amounts go into mortgages which are also held to maturity and have excellent equity positions to protect the life insurance companies in case of default. It must also be noted that investment return from the portfolio is one stream of income. Life insurance companies are extremely profitable not just because of how they invest but also because they have very sound and profitable underwriting businesses that do well no matter what goes on in the economy.
    8. I represent multiple insurance companies though it must be noted there are only a handful of life insurance companies that offer a Whole Life product with a flexible Paid-Up Addtions Rider and meets the requirements for this strategy.

    Thank you,

    John Montoya

Saturday, November 7, 2015

Latest Jobs Report Crushed The Estimates Or Did It?

This job report, like all its predecessors, is utter nonsense! Economist Paul Craig Roberts deconstructed it with the deftness of a knife slicing through warm butter:

He observed: (1) 145,000 of the presumed 271,000 jobs were added by the birth-death model, which as he puts it "provides an estimate of the net amount of unreported jobs lost to business closings and the unreported jobs created by new business openings" & which presumes a normally functioning economy (whatever that is). The mistake is to overestimate the number of jobs created by new businesses & to underestimate the number of jobs lost through business closings. Eliminate this assumption, & we are left with 126,000 jobs, not 271,000.

(2) Of those, what kinds of jobs were they? According to the BLS itself none were in manufacturing or similar productive activity. They were in low-paying domestic services, retail sales, personal services, waiters, waitresses, bartenders, temp help, & similar products of the post-NAFTA era: many of them part-time. You will not retain a first world economy with such jobs, which do not generate sufficient income to support a household of four unless both parents are each working, probably at two jobs each. Many people are staying afloat only by allowing themselves to go massively into debt (witness college / university students many of whom will be debt slaves for the rest of their lives).

(3) The problem with announcing a 5% unemployment rate is that it only counts as unemployed those who are (a) not working; & (b) have sought work in the past four weeks. It does not count "discouraged workers." The BLS itself has other measures of unemployment that will count as unemployed those who have sought work in the past six months; that number is in two digits. If you base the figure on the labor participation rate (at its lowest since the 1970s recession & almost down to projected Great Depression levels), the actual unemployment rate is around 23%, Roberts notes.

A few "disclaimers" are in order. Roberts was Assistant Treasury Secretary under Reagan, then was a co-editor at the Wall Street Journal, & is the author or co-author of many books on economics & public policy, if these count as credentials. But in 2004 he penned (with Chuck Schumer) the landmark heresy "Second Thoughts on Free Trade" (NYT) which got him kicked out of the economics community, for which the "benefits" of "free trade" are articles of religious faith. He's continued as best he could to tell the truth about the post-NAFTA decline of the U.S. economy & the fall of what was the largest financially independent middle class in history, even though this means publishing on his own website & in alternative media, & often being dismissed as a "conspiracy theorist" (i.e., a person who does not trust government numbers any further than he can throw them).

We'll see if the Federal Reserve raises interest rates based on these ludicrous job numbers & precipitates the next step in the long term decline of the U.S. economy (economists will call it a recession, naturally). Or will it be QE4, to keep the present bubble on Wall Street afloat at least past the Nov 2016 election?

Tuesday, January 6, 2015

IRS Changes Rules On IRA to IRA Rollovers

IRS Changes Rules On IRA to IRA Rollovers:

In a recent US Tax Court case, Bobrow v. Commissioner, the Tax Court ruled that all IRAs of a taxpayer should be looked at together when it comes to the one-rollover-per-year rule. Based on IRS guidance, IRAs include every type of IRA (traditional, Roth, SEP and SIMPLE). Prior to The Bobrow case, the IRS had applied this only on a per IRA basis.

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