Investsmiths Blog

Lets see what banks and brokerage firms do

Lock in because i’m going to show that this concept has been around for centuries

So the short answer to is being your own bank a scam? NO, it’s not a scam.

But for starters , let’s talk about what it is, how it works and how it evolves and why its my favorite vehicle.

In more simple terms, SMITH funding is the concept of indexed universal life. You may also know it as infinite banking which was named by Nelson Nash

It’s all the same concept and they all circle around the strategies of how money works

In the Bible in Luke 19:23 says “When then didn’t you put my money on deposit, so that when I came back, I could’ve collected with interest”

So In other words, if you put your money in a bank, a credit union or an insurance company in this example, you are lending them your money. It is in a lended position

They are not just an institution that will sit there an pay you interest, your money is not sitting in a vault

So what are they doing with your money?

They are loaning it back out again at a higher interest rate than they are paying you,

You then get rewarded

They loan it out or invest it and earn a higher rate

If they pay you 1 or 2 or 3% in a bank savings account and they turn around and loan money out on a mortgage at 5,6, or 7% or even a bank loan for your business

Best believe they will be making that spread or that difference

This is the be your own bank concept

When you have money inside of a life insurance policy, you’re building up your own bank, your own resource

And so whenever you have a need, then you can use your money and you go into the insurance policy.

But instead of withdrawing your money, I recommend that you borrow your money, this a int no scam?

You’re borrowing your money

And of you have the people who will say, why would I borrow my own money?

Because if you withdraw it, you hurt your ability to put back and have it be considered “grandfathered” in under tax-free accumulation laws in the Internal Revenue Code

So this means the best way is to borrow it out

And people will say, “ well then, they charge you interest.”

Is that a good thing or a bad thing?

I believe it’s good because in order to make sure that you don’t have to pay taxes on the money

But when you borrow, like borrow for a car or for a business you don’t have to pay on loan proceeds. Its tax-free

So when you borrow, lets say you have a million bucks of cash value in your insurance policy

Now you can go in there and borrow $10k, $100k, if you really wanted to you can actually borrow 94-95%

This borrowed money does not have to be reported as taxable income because you are borrowing it

Now it actually call it a true loan, the insurance company must charge you a nominal interest rate

That’s usually way down in the 1 to 2% range

It can also be as high 3.5 to 4% when we have higher interest environments

So then lets say do charge you 2% but at the same time, agrees to credit you close to the same to become a zero washed loan

So you borrow $100k or a million, they charge you 2%, that’d be $20k on a million but then they credit you 2% on that collateral. So it’s a washed loan

Meaning they credit you $20k which offsets the $20k they actually charged you

Now when you use whole life insurance, hopefully you have what is called a spread or an arbitrage

This means when you borrow at a lower rate, and you earn a slightly higher rate

So if you the whole life policy is around 5 to 6% or even 7 to 8% dividend rate.

If you borrow the money let’s say at 4% and they credit you, you’re making a spread just like banks

That is the bank on yourself concept as well

But why do I use Indexed universal life?

Because its bank on yourself on steroids

Heres why,

In a nutshell, a whole life is a good way to incorporate bank on yourself.

You can borrow money at a lower rate from the insurance company and you continue to be credited with a little bit higher rate.

But at the end of the day, whole life insurance is good for death benefit but in my opinion it doesn’t compare to when it comes to tax free income liek the IUL

In most illustrations that we do with this become your own concept, at the end of the day whole life might create incomes of nearly ⅓ of what IUL was producing for tax free income when it comes to this concept. This is why

With IUL, your money is generally earning 2-3% higher rates of return than regular universal life

And regular universal life usually earns higher rates of return than whole life

In other words, whole life insurance with most of the top companies the average a gross rate of return at 8%

So this means your net rate of return MIGHT be 6%

In universal life you will be able to earn 9% and net 8%. Totally tax-free

This means you’ll be netting what most whole life concepts credit crediting you in gross.

But with IUL, indexed universal life, you can actually on a million dollars, pull out a 10% pay out because of this be your own bank concept

Meaning, you’re borrowing your money out and they charge you 5% but they continue to credit you 10%

How much more is 10 than 5? Its 100% more. Would you hire an employee for $50k that made you $100k

For instance, on a million dollars, they may charge me 5 but I keep earning 10,

That spread, even if its 2% allows me not to just pull out 8% in tax free income because i’m actually with the arbitrage the Be your own bank concept

I’m tweaking the payout usually by 2% points

So a million of cash value can generate $100,000 a year of tax-free income using this spread of this arbitrage concept

So this is always why I would recommend you learn this concept ans then see, not just a good way to do it but the best way using indexed universal life

So in summary, being your own bank concept is not a scam concept

It’s been around for centuries

If you want to learn and study the best way, I suggest you read and study my most recent book The SMITH Fund.

Be sure to click the link below to claim your PDF copy today!

The SMITH Fund E-Book

Did you know you can become a millionaire with $500 a month?

Watch full video on YouTube:

Let’s address the famous question of “What is the minimum amount that I can put into or invest in an IUL?”

You’re going to see that it’s not what you begin with but it’s what you end up with

And so I really am a big proponent that people as they prepare for long- term goals such as retirement or maybe their business or with real estate management, college funding for kids that one of the best places to accumulate their money

So I’m Justin Smith and I’ve been helping people with max-funded IUL ever since the beginning of the pandemic

safely where its liquid, its safe, its projectile rates of return between 7 to 10%

Mind you, we don’t have to pay tax when we take it our nor do we have to pay tax when we transfer it to our heirs.

When we are long gone there is not a n income tax due to whoever I leave it behind to

There actually not that many vehicles that give you tax advantages like that

On top of that there is no other vehicle in the entire Internal Revenue Code that allows you to accumulate access and transfer your money totally tax-free but when it transfers, it blossoms in value

So when the question is asked, what is the minimum amount I can but in just keep in mind for starters you have to cover the cost insurance

This was all dictated under the tax citations that was under TEFRA, DEFRA and TAMRA to accommodate the maximum amount you wanted to but in

So that’s the real question, which is what’s the most amount you want to put in?

This is generally what we call the Guideline single premium

Meaning this is how much you want to be allowed put in to the policy over the life of the policy and no faster than the first 11 years

So for example, let’s say it’s $500,000. Now you don’t have to necessarily put in $500,000 but let’s say that’s the most you can put in over the first 11 years.

In Fact you could actually put that in the first years and then you’re done funding the policy

There’s no limit to what it can grow, it can easily grow to millions and millions of dollars tax-free, there’s only a limit to how much can be put in.

So if you’re trying to set up a contract, a policy, a savings vehicle using indexed universal life with the least amount of premium, then you want to think about what’s the least amount that I can average on a monthly basis?

Today I am putting life insurance policies on new born children at a rate of as little as $25 a month that shows over time how just $25/ a month can grow to hundreds of thousands of dollars.

But if you can start by just socking away $500 a month today which is $6,000 a year.

Now you can put more in than that and you can also put in less than that. If you put in more you can cruise.

So if you throw in 10, or 20,000 and then have to stop and not put anything in, you can do that, if the minimum is 500 a month because you just divide that into how much you’ve already put into the policy.

It also allows for flexibility. Which is why its called UNIVERSAL LIFE because its universally applicable to but minimum and maximum funding

But the question is, how much to you want to accumulate to generate tax-free income at the end of the day

Let’s use the rule of 72 for example

The rule of 72 says you take the interest rate that you are earning on any investment and divide that interest rate into the number 72

So that means 8% into 72 means your money will double every 9 years.

If you’re earning 10%, your money will double every 7.2 years.

If you’re earning 7.2%which is the average that people earned in the worst decade since the great depression

Literally just falling asleep for and waking up 10 years later, people doubled their money

The average return was 7.2%

Let’s use 7.5 for example

If you started socking away $500 bucks a month and you earned an average of 7.5% you would have $1,015,000 in 35 years.

So my suggestion to the minimum question is, if your goal is to have 1 million bucks, I recommend at least $500 a month for the next 30-35 years.

Or even if you had a lump sum, meaning, how much could I set aside so that 30 years from now I have a million if I have 125,000 right now.

Well $125k right now, if you’re earning 7.2% it will double every 10 years so $125k will grow into $250k, to 500k and then 10 years after it will double to a million and this shows that its pretty simple

So when I meet with people, I would say, how much money do you need in today’s dollars, meaning how much would you need to sustain today’s living

Keep in mind we have to take into consideration inflation.

So let’s say you only need $3000 and your project that inflation will be up %5 30 years from now,

That means that $300/month would only buy what $1500 buys $15 years earlier.

So you’re going to need $6000 a month in 15 years to be able to buy the same gallons of gas and bread and eggs that $3000/ month bought 15 years earlier.

We all know how those gas prices are treating us right now.

And if you are looking 30 years down the road it will double again, so $6000 goes to $12,000.

You’re going to need $12,000 a month to buy the same gas and loaves of bread that $3,000/ month buys today.

So in order to have $12,000 a month which is $144k a year, we are going to have to– assuming a 7 or even a 10% rate of return.

We would reverse engineer it and go we need a million and a half or we need 2 millionaire or even a 3 million dollar nest egg to hit that goal.

And so it’s really a function of not what’s the minimum, its how much do you NEED to set aside and then with flexibility being allowed to put in nothing or a very low amount, but its really, what’s the most I can put in to achieve my goals.

So yes, you can become a millionaire by socking away $500 a month for 30 years at 7.5% and if it’s at 10% you’ll see it quicker

But maybe a million is not going to be enough and so this is where you would need to maybe accumulate 2 million or 4 million

People who have used maxed funded indexed universal life, IUL where it was structured correctly and funded properly under the TEFRA, DEFRA, and TAMRA guidelines, this has turned into a cash cow for them.

Claim your copy of our Tax-Free Retirement E-Book:

https://smithfund.insuresmiths.com/

Investsmiths Blog

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