Portfolio Of Client Stories

Turning a tax problem into a wealth-building opportunity.

A big tax bite, a volatile market, and a new spouse.

A 33 year old male had just gotten married to a 29 year old female, and they were living in an upscale apartment while she was finishing medical school. While he had a day job earning an average salary, he liked to invest in run-down residential properties on the side, fix them up, lease them out month to month, and re-sell them for a profit.

In his first year, he had earned 5 times more in his side activity than in his salaried position, but was shocked how much he had to pay in federal income taxes on the short-term gains he had derived.

The situation was only going to get worse when his young wife graduated and became a well-paid doctor. He had no life insurance of any kind, and wanted to buy a new home in a nice, upscale neighborhood in a great school district and start raising a family. He never particularly liked the uncertainty of the markets, and a few of his stock speculations had crashed. He didn’t have time to follow the markets or try and figure out what to invest in, and hated risking his hard-earned money in areas that he had no control over.

So he kept his house flipping profits in a taxable bank account earning an inconsequential rate of interest.

He came to us wanting to save on taxes, get some life insurance for his new family, get a will and trust in place, and start accumulating his nest egg by setting aside 18-20% of his real estate investment earnings.

Tax sheltered asset value growth and immediate death benefit coverage.

To protect his new spouse and potential progeny, the husband decided on a New York Life custom whole life policy with only 10 years of required premiums.

Using less than 10% of his last year’s earnings, he earmarked this amount for the type of policy that would not only provide death benefit protection of $2 million, but would build tax-sheltered cash value year after year.

After the 10 years of premiums were paid, the cash value inside the policy would likely be worth MORE than what he paid in, essentially giving him the $2 million of coverage during this time for free.

This was a lot better than leaving his house-flipping earnings inside a taxable bank account where the earnings wouldn’t even be enough to cover his CPA’s cost of reporting the income on their tax return.


Building up his nest egg.

The young husband’s knack for business allowed him realize much sooner than many of his peers that moving assets from a taxable bucket into a tax-free bucket would provide great benefits down the line–akin to planting an acorn when you want to relax under the shade of an oak someday.

With the custom whole life policy, he would be building an asset that was guaranteed to increase in value each year, and guaranteed to pay an immediate death benefit if something were to unexpectedly happen to him.

At age 67, the cash surrender value is estimated to be more than $918,000—3.55x the premiums paid into the policy. He could borrow up to 90% of the cash value to supplement his discretionary spending in retirement, or simply take some out as a partial surrender in return for a lower death benefit.

By his life expectancy at age 87, it is expected that his policy’s cash value would be worth $2,286,012 , more than 8.8x the premiums paid in. By then, he should have a death benefit of nearly $2,700,000, based on the current dividend scale of New York Life.

By age 100, the New York Life custom whole life policy could provide over $3.66 million in legacy death benefits to his family, tax-free.

Multiplying his net worth without the need for bank borrowing.

By investing under 10% of his annual net profits into the custom whole life policy, he still has another 10%+ left over to continue buying, renting out, refurbishing, and flipping other residential homes. While he continues to engage in that activity, his policy would be building tax-free cash value that he can ultimately tap in future years for his outside investing opportunities.

When he wants to retire, say at 67, he could access over $840,000 of liquid cash value funds (90% of the policy’s cash value) for travel, or to supplement his retirement income, or to invest in other income-producing real estate, without having to tap into other retirement savings or get loans from third party banks.

Any outstanding loans he takes against his policy, with accrued interest, would simply be deducted from the death benefit proceeds. As owner of the policy, he remains in full control.


Securing support for their children.

Flexibility is now built into their long-term financial planning. This young couple eventually wants children. But the wife is just graduating from medical school, and wants to work several years to utilize her degree and earn income for their later years.

Utilizing New York Life’s least expensive policy, a Yearly Convertible Term policy, she procured $1 million of death benefit coverage for $.72 per day. You can’t even buy a soda pop for that anymore.

Next year, it will cost her $.78 per day.

Ten years from now, it will cost her $2.26 per day–still less than a daily Starbuck’s latte’.

She can convert this policy at any time into permanent, level premium coverage that builds cash value, just like her husband’s policy, and so the policy would no longer be just an expense. She will not have to undergo any further medical exams or underwriting. She just would sign a simple form to convert it into a permanent policy.

The caveat is that if she waits over 10 years, the premiums would skyrocket, and they would no longer be guaranteed.

But there is no reason to wait that long. The couple wants children within 10 years. So when a new family member is on the way, she can convert some or all of her yearly convertible term policy into permanent insurance without an exam. It will be a terrific place to put the couple’s excess savings and start building annual tax-free dividends inside the policy for future access as and when needed.