I am in a bit of a pickle.....can anyone offer me some help/advice to get back on the horse?

[DayTimer]

Hey I am just now getting started with DFL

What is "DFL" ... you can post anything you want here in the forum and if yo tag me I'll be notified.

 

[Jack12345]

Debt Free Life is redirecting overpayments on credit card debt, student loans, etc. to fund high CV WL policies and using policy loans to pay off debts more quickly while accumulating CV. What you had described above, just marketing terminology to give the approach/policy structure a pretty name like final expense or mortgage protection.

 

[Kimberly Matthews]

I say it again down below, but I do this - it is one of my main strategies. It works best with clients with many debts, and not nearly as well if all they have is a mortgage (for those people, the product is still great, but the sales concept will be infinite banking & tax-free retirement, or perhaps real estate investing) And it typically shakes out to a nine to eleven year average to get everything paid off. I have seen a few in the 7 year time frame but that requires a certain alignment of the stars, e.g. they have two $600/month car notes and both have less than 24 months to maturity. Read on to understand why that would matter ...

So the steps are:

1) Find the money to fund a ar whole life policy, funded to the max: This is usually by diverting money from 401(k), IRA, cutting out the country club and golfing at the public muni, etc For example, clientis saving 6% into 401(k) with a 3% employer match. Let's continue funding the 401(k) to the 3% match and use the other 3% to help fund the policy. Client now has a much larger par whole life than they could have "afforded" and you have not asked them to "spend" anymore out of pocket than they were already doing.

2) As premiums are paid, use accumulated cash values to pay off debts

3) As debts are retired, divert those payments into the policy to pay off policy loans

4) When cash value = mortgage balance, policy loan pays off mortgage.

Now free cash flow goes into paying policy loans and continuing premiums.

This does work, it is a more efficient use of cash to accomplish what many would recognize as the Dave Ramsey "debt snowball." It is a way to become debt free far more quickly than doing it the Dave Ramsey way while still being able to take your family out to Outback for dinner once in a while and maybe even take a vacation without having to run it through on your Visa card.

The irony is it does not work as well if the only debt the client has is the mortgage. Works incredibly well if they have some revolving charge, maybe a car note or two, some furniture on a note, etc. A $500 premium can rapidly become $2500/month (or more) in cash flow diverted into the policy. Imagine someone can pay $500/month in premium, and their current debt service (mortgage, cars, furniture, credit cards) is $3500/month. Now, some of you well-heeled insurance agents may scoff, but I have found that to be very common. Americans are LOADED down with debt.

Now, use the rapidly accumulating cash values to pay off the smallest debt first. Once that debt is paid off (let's say the monthly payment was $125) now we add that $125 to the $50 premium payment. new cash values accumullate from the new premium payments and the policy loan is repaid out of the $125 that is now freed up from the credit card debt. Son enough the cash value will be built/replenished sufficiently to pay off the car note, freeing up another $489/month. Now the client is making monthly payments into the policy of $1114/month ($500 premium + $125 free cash flow from CC elimination and $489 from car note elimination). Continue the process until the client is debt free.

In my experience, seven years is unlikely. It more typically will take 9 to 11 years. But it still saves the client a yacht-full of interest payments, builds up a supplemental retirment savings faster than they would ever have thought possible, and they got all the insurance protection (most) already wanted for their family but thought they couldn't afford.

And all with the guarantees of a par whole life rather than the ambiguities and uncertainties of an IUL. And if done ethically, you do it using the guaranteed values not the non guaranteed.

Using the guaranteed values to illustrate the plan does two things

1) it guarantees the client of a certain result at a certain time if the client follows the plan, thus protecting you, the agent, should the mutual company decide to do an ON on you and your book of business, and

2) Makes you look like a hero when the cash value is sufficient in 8 months to pay off the first debt when the client thought it would take 12 months because the current

You can play with the numbers by exporting the illustrated values into excel, and it works best if you are able to run it monthly rather than annually for max efficiency.

Sounds too good to be true, but it works incredibly well when designed properly and the client buys in (COMMITS) to the program. And the irony is that the more debt your client has the better this actually works (assuming you can find the money needed for the premium to get the whole thing started. People do not like another bill. But if you can show them how they can find money they are already spending elsewhere and divert that nto a policy without diminishing their current lifestyle (public course are great) then it becomes a real win for the client.

I have not read this whole thread and I am responding only because @scagnt83 is here and he's a good dude whose posts have helped me a ton. I make no judgement on whatever it is the OP is claiming to be doing.

Hi @DayTimer, are you looking for new clients?

 

[rousemark]

I say it again down below, but I do this - it is one of my main strategies. It works best with clients with many debts, and not nearly as well if all they have is a mortgage (for those people, the product is still great, but the sales concept will be infinite banking & tax-free retirement, or perhaps real estate investing) And it typically shakes out to a nine to eleven year average to get everything paid off. I have seen a few in the 7 year time frame but that requires a certain alignment of the stars, e.g. they have two $600/month car notes and both have less than 24 months to maturity. Read on to understand why that would matter ...

So the steps are:

1) Find the money to fund a ar whole life policy, funded to the max: This is usually by diverting money from 401(k), IRA, cutting out the country club and golfing at the public muni, etc For example, clientis saving 6% into 401(k) with a 3% employer match. Let's continue funding the 401(k) to the 3% match and use the other 3% to help fund the policy. Client now has a much larger par whole life than they could have "afforded" and you have not asked them to "spend" anymore out of pocket than they were already doing.

2) As premiums are paid, use accumulated cash values to pay off debts

3) As debts are retired, divert those payments into the policy to pay off policy loans

4) When cash value = mortgage balance, policy loan pays off mortgage.

Now free cash flow goes into paying policy loans and continuing premiums.

This does work, it is a more efficient use of cash to accomplish what many would recognize as the Dave Ramsey "debt snowball." It is a way to become debt free far more quickly than doing it the Dave Ramsey way while still being able to take your family out to Outback for dinner once in a while and maybe even take a vacation without having to run it through on your Visa card.

The irony is it does not work as well if the only debt the client has is the mortgage. Works incredibly well if they have some revolving charge, maybe a car note or two, some furniture on a note, etc. A $500 premium can rapidly become $2500/month (or more) in cash flow diverted into the policy. Imagine someone can pay $500/month in premium, and their current debt service (mortgage, cars, furniture, credit cards) is $3500/month. Now, some of you well-heeled insurance agents may scoff, but I have found that to be very common. Americans are LOADED down with debt.

Now, use the rapidly accumulating cash values to pay off the smallest debt first. Once that debt is paid off (let's say the monthly payment was $125) now we add that $125 to the $50 premium payment. new cash values accumullate from the new premium payments and the policy loan is repaid out of the $125 that is now freed up from the credit card debt. Son enough the cash value will be built/replenished sufficiently to pay off the car note, freeing up another $489/month. Now the client is making monthly payments into the policy of $1114/month ($500 premium + $125 free cash flow from CC elimination and $489 from car note elimination). Continue the process until the client is debt free.

In my experience, seven years is unlikely. It more typically will take 9 to 11 years. But it still saves the client a yacht-full of interest payments, builds up a supplemental retirment savings faster than they would ever have thought possible, and they got all the insurance protection (most) already wanted for their family but thought they couldn't afford.

And all with the guarantees of a par whole life rather than the ambiguities and uncertainties of an IUL. And if done ethically, you do it using the guaranteed values not the non guaranteed.

Using the guaranteed values to illustrate the plan does two things

1) it guarantees the client of a certain result at a certain time if the client follows the plan, thus protecting you, the agent, should the mutual company decide to do an ON on you and your book of business, and

2) Makes you look like a hero when the cash value is sufficient in 8 months to pay off the first debt when the client thought it would take 12 months because the current

You can play with the numbers by exporting the illustrated values into excel, and it works best if you are able to run it monthly rather than annually for max efficiency.

Sounds too good to be true, but it works incredibly well when designed properly and the client buys in (COMMITS) to the program. And the irony is that the more debt your client has the better this actually works (assuming you can find the money needed for the premium to get the whole thing started. People do not like another bill. But if you can show them how they can find money they are already spending elsewhere and divert that nto a policy without diminishing their current lifestyle (public course are great) then it becomes a real win for the client.

I have not read this whole thread and I am responding only because @scagnt83 is here and he's a good dude whose posts have helped me a ton. I make no judgement on whatever it is the OP is claiming to be doing.

Don't understand the advantage of this if the only objective is to get out of debt. Why not jus take the "found" money and pay it directly on the debt?

 

[DVGeorgia]

Don't understand the advantage of this if the only objective is to get out of debt. Why not jus take the "found" money and pay it directly on the debt?

because you are essentially establishing a Roth IRA without having to go through all the annoying pains of pulling from your 401K. Not to mention your 401k typically only allows at most two loans a general purpose and home, (purchase, repair, etc).

not to mention you’re also establishing a Roth IRA that you can get cash value for before age 59.5 without huge tax implications. Say you want to open a business or pay an emergency bill etc.

 

[DHK]

Don't understand the advantage of this if the only objective is to get out of debt. Why not jus take the "found" money and pay it directly on the debt?

Now, that being said, the REAL advantage is getting the uninterrupted compounding going on sooner and then using the policy to absorb the existing debt into the policy without sacrificing the growth of one's wealth, or rather cash values within the policy.

If it was ONLY about debt freedom, then I agree that it's not as efficient as just paying down the debt. All insurance policies have costs, no matter how 'efficient' they are designed. Those costs are questionable if your only objective is to pay off debt.

But since that isn't the only objective, that's the other side of the entire package that makes it make sense.

because you are essentially establishing a Roth IRA without having to go through all the annoying pains of pulling from your 401K. Not to mention your 401k typically only allows at most two loans a general purpose and home, (purchase, repair, etc).

not to mention you’re also establishing a Roth IRA that you can get cash value for before age 59.5 without huge tax implications. Say you want to open a business or pay an emergency bill etc.

Life insurance is not a Roth IRA. It's better. It's life insurance... the ORIGINAL Roth.

 

[Tahoe Ray]

Life insurance is not a Roth IRA. It's better.

It's not better. It's just that a lot of people who should be buying fully funded life insurance don't qualify for a Roth.

Do any life insurance vs. Roth comparison over a 25 year time frame (assuming that the Roth investor is investing in equities, and most should) and you'll see.

And no "distribution strategy" is going to make up for the difference.

Roth is king. Just a lot of folks can't get one. Fully funded life is a great alternative.

 

[DHK]

Life insurance doesn't generate a 1099 when taking a loan distribution. The Roth does. Granted, using the current tax code, it doesn't affect anything... but if it doesn't affect anything, why generate the form?

I believe (and this isn't in the tax code... yet) that Roth distributions will be a factor in Social Security provisional income calculation just like tax-free municipal bond interest is also factored in.

You cannot collateralize a Roth. You can collateralize a life policy.

Plenty of small enough differences that can make a big difference.

But I certainly concede that if the goal is the largest pile of money, equity investing in a Roth will beat fixed cash value life insurance for accumulation.

 

[Allen Trent]

not to mention you’re also establishing a Roth IRA that you can get cash value for before age 59.5 without huge tax implications

Roth IRA prior to age 59.5 has tax free access to all cost basis first. Only gains are taxable & only if you have already taken all your contributions out (FIFO- first in first out)

Also, you can't get "your" life policy base cash value unless you surrender, instead you can get the insurance companies excess money via a loan that the insurance company then takes a collateral/lien position against your cash value.

You can indeed access your own PUAR values(if any) directly via surrender or you could use them as collateral for a loan from insurance company if your plan is to pay it back (note--it always gets paid back eventually one way or the other with compounded interest)

 

[Allen Trent]

Life insurance doesn't generate a 1099 when taking a loan distribution. The Roth does. Granted, using the current tax code, it doesn't affect anything... but if it doesn't affect anything, why generate the form?

I believe (and this isn't in the tax code... yet) that Roth distributions will be a factor in Social Security provisional income calculation just like tax-free municipal bond interest is also factored in.

You cannot collateralize a Roth. You can collateralize a life policy.

Plenty of small enough differences that can make a big difference.

But I certainly concede that if the goal is the largest pile of money, equity investing in a Roth will beat fixed cash value life insurance for accumulation.

Lots of non-taxable items generate a 1099 & some even when there is losses to claim. Variable annuity/variable life surrenders or index or fixed annuity surrenders for less than invested, rollovers, 1035 exchanges, death claims of life insurance, tc.

Currently, Roth income isn't part of tax code related to social security provisional income taxation calculation, but I could envision that happening someday when politicians need a way to shore up social security. This is also likely similar to how the Provisional income levels have remained the same at 25k/32k(50%) & 34k/44k 85% for almost 40 years. There has been no adjustment for inflation in 40 years as to how much of social security is exempt from being counted as taxable income. In inflation adjusted levels, people in 1984 when this started would have had to earn the equivalent of $100k+ in the provisional calculation to have 50% of their SS checks added to taxable income or almost $200k per year for 85% of SS checks to be added to taxable income. So, I wouldnt be shocked to have more items added to the equation of SS benefits, how much they are taxed & Medicare premiums being even more income based, etc

Collaterizing a life policy is indeed a great benefit, but most agents & almost all consumers have no clue that borrowing money from a life carrier with a lien against the life insurance policy is a commitment of 70-100 years of micromanaging it to make sure it doesn't accidentally get surrendered or lapse or get 1035 exchanged ignorantly. The consequences of a loan that compounded for 70 years getting reported as taxable will undo all the original benefits, and more, because all the compounded interest counts against the consumer in the taxable gain calculation at surrender/lapse/1035 when loan is extinguished by carrier when they take withdrawal from the client policy to pay themselves off for the compounded loan balance.

On paper, it is awesome. But when an 85 year old person who forgot why they bought the policy & the agent that sold it has been out of business for 50 years, gets an annual statement showing a $400,000 loan compounded to $420,00 currently after an original loan of $100k was taken out 30 years prior, their child helping them manage their affairs cashes it in for $50k thinking it is best will discover at tax time in 10-18 months that mom & dad now likely owe income taxes on $200-$250k of gains, but only actually got $150k out of the policy into their pocket.