Why Would Banks Fund Kai-Zen?

So finally, we announced it at the university niw live is here, we’ve got the room most of the time. The contractors in the other place are quiet and we can actually start to cover questions that people ask responses that other advisors give to clients that have been presented to kaizen, and our objective is as frequently as we can just collect. Those questions give our considered response to them so that people have I’ll call it more factual information rather than supposition. So we can occasionally invite some guests to come.

Uh back up our podcast and talk to us. So it’s not just you and I listening the whole time we’re inviting guests to yeah. I learn a new thing, so welcome to niw live so welcome to the first episode of our podcast and um.

The first question that I think everybody has asked quite a few times, and it seems to be on everybody’s mind – is why does kaizen seem too good to be true to everybody? Well, the first answer, or the first part of the answer is, is really this look. Most people haven’t heard of it before right and when you haven’t heard of it, and it sounds good, the first thing you go. It sounds too good to be true.

So, let’s break it down into what you probably do know: life insurance cash value has grown tax advantage since the beginning of time. There’s nothing new there. You can look it up on the web. It’s easy to do.

Here’s the key thing about uh kaizen, though what kaizen is doing, is bringing this extra money to the table. Now that turns out to be crucial because people are under saving right. So the first thing we’ve got to do is get more money to the table. So why are we using a life insurance product and an iul in particular? It just turns out that cash inside life insurance is super safe.

For banks to lend against is essentially cash to them. We know that there’s lots of data to support it. So, let’s look at what we’re really doing taking a product that we minimize the expense load as much as we can in so that you’ve got all this surplus cash. That’s growing in a tax advantage manner using that as security for a loan, while banks like secure loans, especially when they’re super super safe to add more money to end up just bringing more cash to solve the problem.

So, although it’s unfamiliar actually, this concept’s been used by the wealthy since the 1960s, it’s not new, we just did a honey. I shrunk the kids kind of equivalent to something that allows people with I’ll call it emerging wealth, 200, 000 plus to participate in the program that previously they were not able to access. It’s not rocket science. I think you bring up a good point from my perspective.

On the um, people have always been able to to use cash value, life insurance to get growth, and it’s very tax. Efficient and most people know that um. I think from my perspective, what I see that is confusing to people is. A lot of people are familiar with whole life.

A lot of people are familiar with variable life. What they’re not familiar with is index life, which just happens to be another way for them to earn some of the cash inside that policy. So I think, if people kind of educated themselves on what that really is they’ll understand it’s pretty common.

The other part of it is loans. Everybody’s been able to do loans, we do financing every single day. I think, from my perspective, what’s different about this loan.

Is that the clients aren’t party to the loan so they’re not having to sign loan documents, and that is very different than normal financing, but it’s centered around the safety of the product itself and how comfortable the banks feel about that safety and that product? That does not require them to need those documents and that’s kind of what’s different, but definitely not too good to be true, been done a long long time, let’s, let’s, let’s build on what you just said there, because I think yeah we end up you. You say this a lot. You have to say it three times, because people can’t get their head around the fact they’re not on the loan outside of the payments they make into the plan. So are banks just nice to us or are they doing it because they’re safe right, and so I think the one thing that people need to understand about kaizen is the stress.

Testing in kaizen is so severe, and that is what we’re using to calculate how much you or the client pays so from a bank point of view. Unless something that is so far out, the norms comes about. Their loan is secured entirely by the cash in the policy at all times.

So all the banks are doing is lending against cash and look if I’m a bank, I don’t care how wealthy you are you’re, probably not as wealthy as a life insurance company and really what they’re doing is they’re just securing their their loan against a 40 50 60 billion dollar portfolio at the at at the carrier level right. So if you think about it in those terms, why wouldn’t the bank do it, but until you’re familiar with what we’ve done within the plan – and I will restate something that you must have said a million times. We built this plan for ourselves and when you’re doing something for yourself the one, particularly if it’s a safety net program, which is what we’re doing it for you really engineer it against survivability and predictability. It’s not about just doing some fancy marketing trying to show some clever projections that aren’t meaningful.

This is designed to have a very, very high probability of happening, certainly way better than the stock portfolio or real estate, or something like that. Well, you have to put in context as to what you mean when you say we built it for ourselves, because I don’t think a lot of people understand that this type of financing has been around since the 60s. It was just only available for the wealthy, so unless you had a 10 million dollar net worth or up you couldn’t play, you know I get choked up.

Yes, yeah, of course, um us wanting to be able to do that, for ourselves is what led us to to create kaizen for ourselves 10 years ago, but we’ve been doing this type of financing for wealthy people for 22 plus years now, so that long in the Industry, um, and and have a very successful um outcome on what we’ve promised and what we’ve actually delivered. Yeah we joke about it. Actually, don’t we because it’s kind of embarrassing right, you start a business, you put your money into it, you don’t save for retirement, because you’re investing in your business, because how many people say this my business is my retirement right and you then get certain numbers.

You can sell it right only if you can sell it and liquidate it, which of course, we know that most don’t so, then you get to a position where you go to the banks that we’ve been working to with for 22 years and go I’d like to Do premium finance and they basically say, go away peasant you’re not worth enough. I mean it’s like well. That was a bit crushing, so you know understand that, from my point of view, I think it’s almost amusing, that you sit there and go okay.

We constructed a program to make sure that we were never going to be back to those early days when we had no money and all the rest of it. We enjoy it and lifestyle right, it’s good. We love it, never want to go back there. So everything about kaizen is really focused around just make sure I can live my quality of life.

The way I want to, and that’s what it’s for right well and we’re in it. Our families are in it, our employees are in it and their kids are in it. I mean adult kids, not children, yeah.

I guess we have to say that we’re that old, too right um. So, let’s we kind of got off base right because it was does this sound too good to be true? So, let’s, let’s, let’s just summarize – establish tax law on life, on the tax treatment of the growth of life insurance and how you borrow money out, nothing new. There hasn’t changed since the time beginning of time. Banks make loans, banks make loans, but they like making loans in particular against secure assets where they know they’re, secure and know that the probability of them being repaid is so high.

Is it’s cash? Okay, nothing new! There. Just like the mortgage market did really only this is a safer asset than buildings. So, let’s not confuse lack of familiarity with what is actually been around for a while, just not used this way and like most inventions, it’s created out of a need. I want to have a better situation for myself.

Oh I’ve got the tools, let’s do it. So what was the next question that came up? Well, I guess we’ve kind of answered some of this, but basically why would banks want to do this? Besides the obvious, which is, banks have to make loans to to make profits so they’re in the business of making loans, I guess look. We can summarize this very simply and bear in mind that banks were lending into these programs in the middle of the banking crisis. When they could almost do nothing except lend against cash right and because this is essentially cash, that’s what they did now take that situation and go okay.

What is the bank looking for super safe loan, it’s safe and by the way banks are kind of like investors, in the sense that you have a portfolio, you have some risky investments and you have some safe investments right well, in banking terms, it’s risky loans, safe Loans but dan you keep talking about safe. So, let’s, let’s explain to our audience what we mean by safe when we’re talking about the life insurance policy, because I don’t. I don’t think that the average person understands that when, when we collect premiums for the client put into the life insurance policy, that, though that cash goes into the insurance company’s general account portfolio and so from a bank’s perspective. That general account portfolio is a very, very safe asset to have an assignment, so the bank’s going to give you money you’re, going to assign your policy it’s sitting in that general account of an insurance highly rated insurance company.

So it’s super safe and that’s what we mean by safe. Well, you went geeky on me there. So let me translate for the mortal listen to this. What is a general account, a general account’s, basically, a bond portfolio, high credit grade bonds, which are the safety net of a product portfolio right, here’s the difference – and this is what’s crucially important – bonds.

If you know you have them as your safety net in your portfolio. Right, so what do you do in that event? You sell your bonds, so you have cash when you need it most. Here’s the problem with bonds when interest rates go up, the sale value of the bond goes down, but that does not happen in the life insurance. General account so the the fancy word, the industry uses mark to market value or they hold their bonds to maturity.

They don’t sell them, they don’t sell them. But when you surrender your policy or take a policy loan, there is no uh mark to market risk. For the lender, so if you went with a load of good quality bonds to a lender and say, can I borrow against that they might give you 80 cents on the dollar? Take that portfolio put it inside an insurance company’s wrap with the credit guarantees of the carrier. That’s now treated as cash, so people forget when they’re here, particularly when they hear index universal life they go.

Oh index fund must be in the market. It’s not the vast majority of your money is sitting in bonds with principal protection guaranteed by the carrier. So from a bank point of view, this is just perfect.

So, to sum it up as long as the client puts in enough money to cover their cost of insurance, the remainder of their cash plus the bank’s cash is sitting in a principally protected general account made up of pretty safe, fixed assets that the bank feels very Comfortable and so therefore, they do not need loan documents, they are only interested in assignment until you give the money back. Is that that I think it’s brilliant? The only thing I can think of to add would be, and let’s remember, that the ratio of that payment is based on stress testing, not normal, so even if we go into a great depression or even particularly right now, when interest rates are going up, everybody’s asking What interest rates come up? We took interest rates in our testing from 1 to 186 overnight. Now that might be a little bit of a shock to the economy. I mean people are freaking out about 50 basis points right.

We went eight, you have 176 percent interest rate increase right, super draconian, but that means that the plan is insulating. It’s at risk. So, from a bank point of view, they don’t care about interest rate rises affecting their loan.

They don’t fair. Uh worry about great depressions affecting their loan. This is safe for them well, and I think one other point to that is again: it’s cash.

So, unlike a house that could go down in a housing crisis or a car that loses value, company investment, you think about any investment out there pretty much. Unless, of course, you wanted to borrow a load of money to invest in treasuries, which nobody in their right mind would do so. The the value proposition from a bank is that I’m secure against bonds, but I get some of the upside which again gets locked in. So it’s super, it’s iul’s are are just the right asset class to use for this particular structure.

It doesn’t mean whole life’s bad, doesn’t mean variable life, which is just a securities portfolio, is bad. It’s just for this application. It’s a good fit, so I i think to wrap up instead of asking the questions.

Why would a bank want to do this? We should be asking it the other way around. Why wouldn’t a bank want to do this? Um so be sure you subscribe to youtube. So that you can get this podcast and all the rest of the ones we’re going to be doing here hopefully shortly and thanks for joining yeah, it was fun. You.