PLATINUM Endowment

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 THE PERFECT INVESTMENT

Index Universal Life (IUL) THE SWISS ARMY KNIFE OF ASSETS

 Elements of the Perfect Investment

LIQUID

Full liquidity

Easily leverageable

SAFE

Low market risk

Low creditor risk

Low default risk

Low interest rate risk

Guaranteed income

LOW COST

No expenses

GOOD RETURN

Unlimited rate of return

TAX EFFICIENT

Tax-deductible contributions

Tax-deferred growth

Tax-free distributions

Tax-free transfers

No IRS income limitations

No IRS contribution limitations

No IRS minimum distributions

No IRS early distribution penalty

What the IUL Has:

LIQUID

Full liquidity -YES

Easily leverageable-YES

SAFE

Low market risk-YES

Low creditor risk-YES

Low default risk-YES

Low interest rate risk-YES

Guaranteed income-YES

LOW COST

No expenses-YES

GOOD RETURN

Unlimited rate of return-YES

TAX EFFICIENT

Tax-deductible contributions-NO

Tax-deferred growth-YES

Tax-free distributions-YES

Tax-free transfers-YES

No IRS income limitations-YES

No IRS contribution limitations-YES

No IRS minimum distributions-YES

No IRS early distribution penalty-YES


Increase Your Wealth Mome​ntum using Other People's Money


We all have 6 potential resources to support ourselves, our families, our businesses, and our charities:

 Our time

 Our talent

 Our treasure

 Other people’s time

 Other people’s talent

 Other people’s treasure


Most people only use their time and talent to make a living. Some people use their treasure to save for their future. Employers use other people’s time and talent to operate their business (they “leverage” other people’s time and talent). Wealthy people use other people’s money (OPM) to build wealth (they “leverage” other people’s treasure).


Why do wealthy people use OPM? Wealthy people understand the difference between “velocity of money” and “wealth momentum”.

 Velocity = speed of money (rate of return)

 Momentum = mass TIMES velocity

 Wealth Momentum = amount OF money TIMES return ON money

 Wealth momentum, by definition, can be exponentially greater than velocity of money—it simply requires more money.


Wealthy people increase their wealth momentum by adding OPM to their money.

Wealthy people understand there is a cost to use OPM and there is a cost to NOT use OPM. The cost to use OPM is known as “employment cost” (cost to employ money, which would include the interest rate and payment). The cost to NOT use OPM is known as “lost opportunity cost” (growth/income they could have earned on another asset). If employment cost is less than ​the opportunity, they borrow. If they can borrow at 3% and can earn 8%, they borrow. This is known as “positive arbitrage”. If employment cost is more than the opportunity, they do not borrow. If they can borrow at 10% and can earn 8%, they do not borrow. This is known as “negative arbitrage”.


In the context of speed, wealthy people understand, like aviators, that to increase their speed, they must increase their “thrust” AND decrease their “drag”. To decrease financial “drag”, wealthy people minimize expenses, taxes AND the lost opportunity costs related to expenses, taxes and spending their own money. To increase financial “thrust”, wealthy people use OPM if they can earn positive arbitrage.


Here is a simple story to illustrate why wealthy people use OPM: A farmer owned an apple orchard and had a contract to sell boxes of apples to Walmart at $5 per box. Once he sells all his apples, his neighbor (who does not have a contract with

Walmart) offers to sell him boxes of apples at $3 per box that he can then sell for $5 per box. How many boxes of apples do you think the farmer would like to buy from his neighbor? As many as he can! Wealthy people view OPM the same way: if

they can “buy” a dollar for 3 cents and then “sell” the same dollar for 5 cents, they want to “buy” as many dollars as they can.


Simply put, wealthy people increase their wealth momentum by:

 Borrowing to BUILD

 Borrowing to BUY

 Borrowing to BEQUEATH

Specifically, wealthy people increase their wealth momentum with the following tax-efficient system:

 Wealthy people BORROW tax free to BUILD tax-deferred businesses (their company stock is tax deferred).

 Wealthy people BORROW tax free from their businesses, or against their tax-deferred company stock, to support their lifestyle and to BUY tax-deferred assets.


The following is the first paragraph of the proposed Billionaire Income Tax

by Senator Ron Wyden on October 27, 2021: “Working Americans like nurses and firefighters pay taxes with every paycheck, while billionaires defer paying taxes for decades, if not indefinitely. The tax code’s preferences for capital income over wage income fuel the concentration of dynastic wealth among the nation’s billionaires. The wealthiest few who avoid taxes by indefinitely holding assets are also able to borrow against those assets to fund their lifestyles. This means they opt out of paying taxes and instead pay only low interest rates on loans from Wall Street banks. As a result, middle-class families who earn their incomes from wages and salaries may face higher average tax rates than billionaires.”


 Wealthy people BORROW tax free against tax-deferred assets to BUY more tax-deferred assets


 Wealthy people BORROW tax free to BUY tax-free life insurance. Wealthy people don’t buy life insurance because they NEED it—they buy it because they WANT it. They want life insurance cash value so they can borrow against it tax free to finance their lifestyle and BUY more tax-deferred assets. They BEQUEATH the life insurance death benefit so their family can use the life insurance company’s money to pay off loans that may be due at death. In other words, they use OPM to pay off OPM! Using the death benefit to pay off required loans at death has the additional benefit of not forcing heirs to sell assets at an inopportune time. Wealthy institutions (banks and publicly traded companies) often use cash value life insurance as their primary source of liquid reserves. Do an internet search on “bank owned life insurance BOLI” and “corporate owned life insurance COLI”. Many of the largest banks in America have more cash value life insurance as part of their Tier 1 capital (their liquid reserves) than any other asset. Since customer deposit accounts at banks are “accounts payable” to the bank, the bank is technically borrowing from their customers to BUY life insurance.


 Wealthy people BORROW tax free against their tax-free life insurance cash value to BUY more tax-deferred businesses or assets. 

Walt Disney used a loan against his life insurance to start Disneyland. JC Penney used a loan against his life insurance to finance his stores. Ray Kroc used a loan against his life insurance to finance McDonald’s. Doris Christopher used a loan against her life insurance to start Pampered Chef.


 Wealthy people BORROW tax free against their tax-free life insurance to BUY more tax-free life insurance (until they reach their family’s and employees’ insurability limits). This strategy is called “stacking”.


Interestingly, the Wall Street Journal published an article entitled “Buy, Borrow, Die: How Rich Americans Live Off Their Paper Wealth”, with a subtitle of “Banks say the wealthy are borrowing more than ever, using low-interest loans backed by their investments”. In short, wealthy people use OPM to buy and build businesses, buy assets, buy life insurance, support their lifestyle, and pay

taxes (if they have any).


If you conclude that wealthy people are “playing chess” while the masses are “playing checkers” you are correct. Checkers and chess are played on the same game board, but they use different pieces, rules, and strategies. If you are going to win the game, you first must know what game you are playing. We all play on the same game board of money. The good news is that we get to CHOOSE which game we are playing. Forbes published an article entitled “How Ordinary Americans Can Also Buy, Borrow, And Die Without Paying Taxes” that discusses how and why the rich do it and how “ordinary” people can do it. There are some good ideas in the article, and we offer additional strategies that are available to everyone.


We encourage individuals and businesses (of any income or net worth) to choose financial chess over checkers, and we educate our clients on the financial chess pieces, rules, and strategies. One of the financial chess pieces wealthy people and institutions use is cash value life insurance, and one of the financial chess strategies is to fund their policies with OPM. We have clients funding as little as $100 per month who can implement the same strategy as wealthy people. We have other clients who are funding millions of their own dollars AND millions of OPM into their life insurance policies.


Like most things, there is good, bad, and ugly cash value life insurance, so it is important to make sure of the following:

 Choose the right life insurance company. Use A-rated companies if possible.


 Choose the right life insurance product type. Most wealthy people use either whole life or indexed life for traditional products and use variable life for their private placement (non-traditional) product.


 Choose the right life insurance product that fits your purpose. Companies can have multiple products of the same type that are designed for different purposes (accumulation versus death benefit). Wealthy people choose products that have expense reimbursement bonuses to reduce the financial “drag” of expenses. Expense reimbursement bonuses are offered by companies that “profit share” with their customers. These bonuses are called “dividends” with whole life and “indexed crediting bonuses” with indexed life. The US tax court, in their decision on the taxation of life insurance dividends, said dividends were “a return of overcharged premium”, which sounds a lot like “expense reimbursement”.


 Choose the right index strategy (if using indexed life). Using historical data, this is the biggest difference between indexed life products.


 Design the product to be both effective and efficient. There are too many variables to discuss here but may include options like death benefit type and riders.


 Fund the product optimally. Choose how much of your own money you want to use and when. Choose how much of OPM you want to use and when.


 Use the product optimally. Choose which liquidity option you want—withdrawal or loan. Most wealthy people choose participating loans (or lines of credit) to reduce the “drag” of lost opportunity cost of withdrawals.


 Own the product properly. For most people, owning the policy in their name is appropriate. For others, it may be appropriate to own the policy in a corporate entity. And for others, it may be appropriate to own it in a trust.


Cash value life insurance (if structured, funded and used like wealthy people do) offers the following investment attributes that make it the Swiss Army Knife of assets:

o Liquid (like a checking or savings account). Can have checkbook access through line of credit.

o Loans against the account value that are easy, low cost, and have good terms (like a HELOC). This reduces the “drag” of lost opportunity cost of withdrawals. This increases the “thrust” of potential positive arbitrage.

o No market risk (like a CD).

o No net cost through expense reimbursement (better long term than a no-load mutual fund). This reduces the “drag” of expenses AND the lost opportunity cost of expenses.

o Potential for double digit annual returns, with or without leverage (like a stock market index fund).

o Tax-free growth, income, and death benefit (like a Roth IRA). This reduces the “drag” of taxes AND the lost opportunity cost of taxes.



For businesses, cash value life insurance can be used as an alternative to bank checking and savings for liquid reserves.

Ironically, many banks use cash value life insurance for a significant portion of their liquid reserves. Here are some of the benefits for employers and employees when a company uses cash value life insurance as part of their liquid reserves:


Employer benefits:

o Liquidity with checkbook access

o No market risk

o Potential for double-digit rate of return

o Fund buy-sell agreement

o Fund key person insurance

o Fund non-qualified deferred compensation plan

o Attract and retain key employees

o Significant tax-free income from life insurance

o Increased business valuation from tax-free income. This could be 6x to 10x multiple of tax-free income (EBITA) from life insurance vs 1x multiple for cash reserves at bank

o Asset protection of liquid reserves (lawsuits, bankruptcy) through secured line of credit

o Tax deduction for some of the cost of employee life insurance

o Tax deduction for employee supplemental retirement income



Employee benefits:

o Significant and permanent death benefit for heirs or charities (10x to 30x salary)

o Supplemental retirement income benefit

o Lifetime access to death benefit for long term care, terminal illness and critical illness

o Option to purchase cash value in the future

o One of our clients calls these benefits “sticky golden handcuffs” since they can reduce the chance of an employee leaving



Finally, for more sophisticated investors, we recommend private placement life insurance (PPLI), since it provides a low cost, tax-free “wrapper” around many of their currently taxable and tax-deferred investments (without having to change their current investments or advisors). For example, if a client has $5 million of “tax exposed” assets and is in a 30% tax bracket, the question is: “Would you rather “partner” with the IRS and pay them 30% of your gains, or would you rather “partner” with a life insurance company who charges you an average of 2% per year, but provides your family $15 million of tax-free death benefit that should more than reimburse those charges?”. Interestingly, many money managers prefer PPLI because it removes tax sensitivity from their trades. For our clients who already have traditional life insurance and do not want more death benefit or who are not insurable, they can assign the current death benefit to the private placement life insurance company in exchange for the same death benefit. With this strategy, there is no underwriting or additional cost of insurance, and the “tax exposed” assets can still become tax free. Like anything else, PPLI is a game with its own pieces, and has rules and strategies that must be followed to win. 


Contin​uing the game theme, Tony Robbins recommends PPLI in his book “Money – Master the Game” in chapter 5.5 entitled “Secrets of the Ultrawealthy (That You Can Use Too!)”.


In conclusion, we have covered a lot of what you could do in your pursuit of increased wealth momentum, but the important question is “What should you do and how should you do it?”. “Could” is based on knowledge. “Should” is based on wisdom.

M. Morrow.



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