With Income for Life (a.k.a Private Reserve Account, PRA), we put our money into a high-quality indexed universal life insurance policy from a solid company. And we set it up a specific way to supercharge the growing cash balance in your policy.
But why is the policy loan feature with a PRA such a big deal?
In short, your policy comes with a guaranteed policy loan provision. That means the insurance company will give you a loan (no questions asked) up to the value of cash in your policy—anytime you want it.
For example, if I have $50,000 in cash value in my policy, I can call up the insurance company and request a $50,000 loan.
Now, here’s the great thing about this: The insurance company will loan money to me from its own coffers, not my policy’s. That means my money stays intact in my policy and continues to grow. This is huge. Uninterrupted compound interest has been called the eighth wonder of the world. If I were to use $50,000 of my own cash to fund something, I would likely have to liquidate an investment (maybe sell a stock or take money out of an interest-bearing account)—and that would stop the compounding process.
But with this policy loan feature, I get the best of both worlds—the money I need and continued compounding.
Why is the insurance company willing to do this?
Because it is well aware that I have $50,000 cash in my policy. In other words, it has the cash value as collateral. If I don’t repay my loan, the insurance company can get it from my death benefit proceeds when I pass away. That makes this the safest loan the insurance company could make.
And from my end, this is the most flexible loan I could ever hope to find. I can set my own payback terms. Maybe I want to pay it back over 10 years. Or 30 years. Maybe I want to pay interest only. Maybe I want to set my repayment schedule at quarterly payments. It's MY choice. Not a bank's. Not a credit union's. Not a broker's.
And, the IRS is not aware nor involved. The credit reporting agencies are not involved.
But beyond flexibility, there’s one HUGE benefit related to policy loans that I want to tell you about. It’s the reason for today’s report...
In this article, I’m going to show you the most exciting way you can use a Private Reserve Account to invest using this feature. It will supercharge the rate at which your money compounds. And the end result? A huge stream of retirement income.
To do this, I’m going to take Income for Life’s flexibility and safety... and marry it with another one of my favorite wealth building strategies—private investments. Now, I've done this also with solid, dividend-paying stocks. That's another method, and perhaps another article. For now, let's focus on private investments. Today, equity crowdfunding allows even small investors to tap into growing companies, and growing cashflows, for as little as $100 or $1000.
With yields in the fixed-income market at historic lows, traditional investments such as Treasury bonds just aren’t able to deliver adequate income.
But there are alternative ways to earn current income, from private real estate opportunities to lucrative revenue-sharing deals. The yields on such deals often approach or exceed 10%. For example, a recent deal will earn preferred annual returns of 8%, and, upon completion, an IRR of over 12%. The 10-year U.S. Treasury Bond currently yields about .69%. So this deal could potentially deliver returns that are about 18x higher than that.
Now, this type of investment comes with risk - the main ones generally being delays in construction, financing, or regulation changes. That's why it's ideal to balance it with your solid returns in Income for Life. And, since minimums often are small, I can diversify and invest in a number of these. In the case below, we put a larger sum into a solid company purchasing single-family houses.
So, I’ll use the insurance company’s money to help me fund a portfolio of private investments. Today, thanks to this feature, I'm able to truly compound in multiple accounts. It won’t cost me more than a few “pennies” and in return, I’ll have diversification and future cash flow.
Skeptical? Not surprised. Anytime someone makes a promise such as this one, I hope an alarm bell goes off. But keep reading... I’m going to explain, and SHOW you how my statement is true. When you’re finished reading, you’ll understand why I think this is one of the most powerful investing strategies I've investigated and employed.
What makes dual compounding so powerful? In one word—leverage. You’re going to let other people’s money generate income for you.
Here is an actual case study. For this investment, we used a solid company buying single family homes in the Dallas, Texas area. We made two investments from our Private Reserve Account, and let it compound since then. Here are the actual results so far:
As you can see, we've made a solid return of 8.6% in the past 5 years, and will get significant capital gains when the investment is liquidated. But we are in no hurry for that! I expect the total IRR to be at least 15%.
So, add this 8.6% to the compounding inside the PRA during the past 5 years, of approximately 6.4%. Our total return on this $75,000 investment is 15% annually over the past 5 years. But remember, since the growth inside the policy is tax-free, it's equivalent of about 8% taxable.
Of course, we have to pay the policy loan (and we do it from the cash flow above). So our overall return using this strategy is over 10% (equivalent to 12% if taxed). So far. And, once the policy ages past its 10th year, we'll be able to take out a 'wash loan', whereby the cost of borrowing is 0!...Supercharging our returns. Rinse and repeat.
We've coupled the safe returns from the Income for Life PRA strategy with a more-risky (but still very solid) asset investment to leverage the insurance company's money.
This is shown graphically below.
We have used a very safe strategy to diversify our portfolio, and to build capital both inside and outside the PRA, meanwhile getting great returns.
I trust the reader now understands my claim above about the power of this dual compounding investing strategy.