Why Hybrid Arbitrage - Because We've Been Fooled
Why Hybrid Arbitrage? Just a few short years ago, I was staunchly opposed to indexed universal life insurance, because that’s what I was taught by the national "banks" and “gurus” years ago. I believed (as many people still do) that if you need life insurance, you should buy a term policy, then take the difference in premiums between whole life and term and invest it in mutual funds.
Advisors also say that you shouldn't pay off your house early because, a home loan is cheap money and you can't get to your equity. That money can be used for investing, as if you will never lose money in the market and as if advisors don't make points whether you make money or not.
So when a friend of mine sat me down and tried to show me how I could bank like the banks do, I nearly refused to listen. Many of you reading this will feel the same way, and nothing I say will change your minds. That’s fine, you’re entitled to your opinion just as I was entitled to mine.
Thankfully, my associate showed me how a properly designed indexed universal life insurance policy and hybrid financial arbitrage works. I soon realized that the gurus and advisors of today were correct, based on the information they’d been given. The problem was their information was incomplete and that's why hybrid financial arbitrage was outside their realm of thinking.
Hybrid Arbitrage, a solution that is a unique combination of GPS debt technology (No refinance, modification, settlement or consolidation) and a special kind of liquid index universal life insurance, POLI (Private Owned Life Insurance), the kind that banks use. This is a type of BOLI can be used by any American adult, family and business owner. Hybrid Arbitrage turns Infinite Banking, BYOB, Velocity Banking or any other type of banking solution previous used, on its head.
What They Don't Know?
Whenever I hear a financial advisor (or anyone, for that matter) talk about less expensive premiums for term, or equity isn't real money, I know they really don’t understand how this solution of hybrid financial arbitrage really works.
They don't know amortization, as if in a 6% mortgage the interest is not more than the cost of the house. They don't realize that JC Penney would have gone broke in the 30s without whole life insurance and that it took 32 years for the stock market to recover. Now we are in a global market.
They know nothing about the IRS codes 7702 & 101a passed by congress in the Cares Act 2020. They don't know about about BOLI, COLI or about the many rich people who established their fortunes using life insurance.
The goal is not to use a whole life insurance policy, the goal is to strategically optimize your pay off using technology, eliminate up to 75% of the interest, while paying off your debt or mortgage in less than half the time. Rather than using a HELOC or a Savings account, using the Index Universal Life Insurance policy allows you to make money on your early mortgage or debt pay off. Your money never leaves the IUL, you earn interest on your liabilities for the rest of your life, you also become your own bank. You make the interest on your own future loans and never pay them back. You bank like a bank.
Why hybrid Arbitrage? Because I was fooled too, but I researched the information and you can google it too.
Average Is Not Actual
Why hybrid, because with a properly designed indexed universal whole life insurance policy, you get:
- Principal protection guarantees of your money. Your cash value isn’t subject to market losses, as it is with mutual funds and other programs. When the stock market tanks again (and it’s never a question of if but when), you won’t lose a dime.
- Growth of your money every year. This will be interest-rate-driven based on the economy, but your account will move forward every year regardless of what the market does. This is compound tax-free growth and not the “average rate of return” you get with mutual funds. To be fair, in our current low-interest-rate environment, the growth rates are only in the 2 percent to 4 percent range but as you study further you start to realize the real wealth is not in the growth rate even when rates go higher.
Why hybrid arbitrage? Because, many financial advisers will tell you that your money would do better in a good mutual fund. But remember, when someone shows you an “average rate of return,” they can start taking that average from any time that benefits their example. This is not compounded growth but rather a factor of timing as to when you enter and exit the market, actual return is much different.
Why Hybrid - There Is No Risk
The stock market has wild swings; if that is acceptable to you, you should have much of your money in stocks. If not, maybe it’s time to consider a more hybrid way to think about investing. (Remember the period from March 2000 to October 2002, when the Nasdaq lost 78 percent of its value? It’s been 16 years since the dot-com bubble started to pop, and the tech-heavy index still hasn’t quite recovered to that level. If you like guarantees and stability then you have no business putting most of your money in the stock market.)
- Dividends paid to policy owners are not taxable. Dividends aren’t guaranteed, but many reputable life insurance companies have been in business for more than 100 years and they’ve paid out dividends every year. The amount of that dividend will depend on several factors, but it boils down to how much profit the insurance carrier made. When properly paid to the policy owner, those dividends are not taxable.
- A high starting cash value amount, based on what you contribute to the policy. Index universal life policies that aren’t properly designed will have very little cash value in the early years. But if it is properly structured under the new IRS codes, you can put as much as 3 times the the amount you could put before the changes without paying a lot higher premium payments. In a 401K and IRA you are limited on what you contribute, but in high value life insurance you can contribute without limits. In fact you can create the policy for paying debt put your entire mortgage debt into the policy, contribute all of your discretionary income and still pass the 7 pay test.
But a properly structured life insurance policy will have high cash value percentages, and liquidity even in its first year, and they increase every year. This becomes an important fact when you are paying off any kind of debt, student loan or a mortgage.
Why Hybrid - Tax Advantages
- Access to your cash value at any age, at any time, for any reason — without taxes or penalty. This is a huge benefit of universal index whole life policies compared to 401(k)s and IRAs, which impose multiple obstacles if you want to access your cash before retirement, and penalize you if the funds you borrow from them are not paid them back and at a certain interest rate. No such obstacles exist with a universal index whole-life policy. So leave your cash in the policy if you wish, or borrow it back out and use it, the choice is yours.
- The ability to use your account’s cash value to recapture lost depreciation on major purchases and interest and fees paid to banks. If you learn to treat this pool of money inside the life policy like your own personal bank, you can loan it out to yourself and others to create wealth. But suffice it to say for now that banking has been around in some fashion for thousands of years. Any business model that lasts that long is worth understanding and using to your advantage.
- Permanent insurance. Once the policy is in place, your insurance is guaranteed for the rest of your life. Many people assume they’ll be able to buy new insurance at any point in their life. But nothing is further from the truth, especially for those who’ve been diagnosed with chronic or terminal diseases. If you become seriously ill, don’t expect to be able to buy a new policy. This life insurance is all the assurance that you need to know that you’re covered for life.
With many index universal life policies, you can add an “accelerated death benefit rider” for little to no cost, which will give you access to a large portion of your death benefit during your lifetime if you have a terminal or chronic illness.
The Death Benefit
I just had a associate with a client who was diagnosed with Lou Gehrig’s disease, or ALS, and was sent a check from his insurer for more than 70 percent of the eventual death benefit. He’ll be able to enjoy his remaining time without worrying how he will pay his bills.
- The ability to combine your life policy with the worlds of real estate, private lending and auto financing to accelerate equity or your wealth, both inside and outside of the policy. Just remember that any funds inside the policy are tax-free for life.
- Protection from long term care and chronic care expenses. Well written policies with the proper companies could provide the ability access a portion of your eventual death benefit during your lifetime to help pay for assisted living or long term care expenses. This will insulate and protect your other wealth so you don’t spend a lifetime building wealth only to give it all back before you pass away leaving nothing for your family.
- Death benefit. In addition to all the benefits you can make use of while you’re still here, at heart, this investment is still a life insurance policy, so when you eventually die, there will be a sum of money left behind to your beneficiaries — tax-free.
Turn Liabilities Into Income
There’s a reason family dynasties, banks, and big corporations have been using universal life insurance for generations to grow and protect their wealth. Even when subject to estate limits, the wide coverage of life insurance makes sure that these death payouts go a long way toward promoting the tax-free, inter-generational transfer of wealth.
Of course, insurance company policies, products, options, services and riders will vary by state due to state regulations and depending on the actual insurance carrier. But you won’t find another type of account or investment that has all these benefits in one investment — not 401(k)s, IRAs, mutual funds, stocks, bonds, precious metals, real estate, nor any other account. Rather than a liability, a good life insurance can be a great asset to you and your family.