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2020 will forever be remembered as a year of major changes in how we live our lives, whether it be social distancing, or distance learning, or remote workplaces.
And thanks to the Consolidated Appropriations Act of 2021 that Congress passed in late December and that Donald Trump signed into law on December 27…
2020 could also be remembered as the year Cash Flow Banking changed forever.
The question is — will the changes be good or bad for you?
The answer is, it depends upon what you want to accomplish with your Cash Flow Banking system.
First, a little background.
As you may know, Cash Flow Banking is an incredible wealth-building system that’s powered by a special form of overfunded Whole Life Insurance.
And when you construct one of these policies in a specific way…
It transforms an ordinary, boring life insurance policy into an investment-grade wealth accelerator, and gives Cash Flow Banking many of its most compelling benefits…
Like growing your contributions by an annual, guaranteed rate (historically 2-4%), or…
Providing capital preservation without risking principle (so your cash value is not affected by market volatility and you won’t lose your money if the economy “crashes” again), or…
Creating a family or personal bank with quick-access loans for any purpose (no credit check required and no questions asked), or…
Allowing you to build your wealth — tax-free — with no age restrictions and no early withdrawal penalties, so you can decide when you want to access your money.
In fact, all these incredible benefits led the Wall Street Journal to once call Whole Life Insurance “a tax shelter for the rich.”
At Wealth Factory, we’ve engineered a way to make the Cash Flow Banking system accessible to almost anyone, even if you’re not rich.
Unfortunately, with persistently low interest rates for the last decade — Whole Life Insurance was on the verge of extinction.
Its fate was tied to an obscure section in the Internal Revenue Code known as section 7702.
And it threatened to make the entire Cash Flow Banking system obsolete.
But the spending bill passed by Congress and signed by Trump in the waning hours of 2020 likely saved the day.
Back in the early 1980s, some people discovered a kind of loophole with permanent life insurance.
Basically, they’d buy a permanent life insurance policy with a low death benefit, and then “overfund” it with special riders.
Advisors for wealthy clients started realizing they could stuff these policies full of cash and then access the money through loans, effectively avoiding taxation.
So Congress added section 7702 to the IRS code to keep these ultra-wealthy clients from completely avoiding future taxation.
Since that time, this law limits how much you can “overfund” a Whole Life policy.
If you go over the limit, your insurance policy turns into a Modified Endowment Contract (MEC) and you lose all your tax benefits.
The key is in how section 7702 defined the MEC limit.
Essentially, the law used a test based on the policy paying out a guaranteed interest rate.
And for whatever reason, Congress hard-coded that guarantee at 4%.
Back in the high-interest days of the ’80s, ’90s, and even early 2000s — this was a non-issue.
But with interest rates so low for the past 10 years, it’s been difficult for insurance companies to continue offering these cash-value products.
So let’s flip our perspective and pretend like we’re the insurance company who needs to make a profit to stay in business.
First of all, we see the obvious source of revenue when insurance companies collect premiums (monthly or annually) from policyholders.
They hold on to this money until they need to pay out a claim when someone passes.
With term life policies, over 90% of them “expire” without the insurance company ever having to pay out.
So term life insurance — though it seems cheap to a customer — is actually a pure expense unless you die.
This provides a lucrative source of revenue for a life insurance company. Over 90% of the premiums collected never have to be paid out on a claim, and thus are pure profit.
Permanent life insurance is different. A Whole Life policy is guaranteed to pay out as long as the customer keeps paying the premiums.
The since the insurance company knows it’s going to have to pay out the death benefit at some point…
The only way the insurance company can make money is to invest the premiums over the lifetime of a policyholder and hope they can make more over time than they pay out at the end.
Traditionally, they invest these accumulating funds in high-grade bonds, like U.S. Treasuries.
It makes sense when you have the long term in mind.
For example, these companies are still holding 30-year U.S. Treasury bonds they bought in the early 1990s.
Those are still paying out between 8-9% annually.
That’s why it’s never been a problem for insurance companies to pay out a guaranteed 4% to Whole Life policy owners.
The problem is that in the last 10 years, they’ve had to replace expiring bonds with lower-paying bonds — in the 3%-4% range.
In fact, in the last several months, 30-Year U.S. Treasuries have fallen under 2%.
But insurance companies offering Whole Life policies were still required by law to guarantee 4% to their policyholders.
That’s a long-term recipe for insolvency.
And it’s why Whole Life insurance — and Cash Flow Banking as we know it — was in real danger of going extinct.
Buried deep into the 5,593-page Consolidated Appropriations Act of 2021 — the bill that Congress passed in the waning hours of 2020 — are some subtle, yet monumental revisions to IRC Section 7702.
As mentioned earlier, this is the section of the code that dictates the premium limits for life insurance policies before they would become a MEC (Modified Endowment Contract).
This recent revision represents the first major change to life insurance funding parameters since 7702 was originally enacted in the 1980s.
The simplest way to understand the change is that instead of hard-coding the MEC limits to a 4% guarantee…
The MEC test is now based on a floating rate relative to the Prime rate, just like most other interest rates are calculated.
It will take a while for insurance companies to incorporate these changes into the types of products and policies they offer.
But the change is coming this year, and perhaps sooner than later depending upon which insurance company we’re talking about.
From a consumer standpoint, there are several ways to look at it.
The Wall Street Journal recently claimed that this change is a “Boon for Permanent Life Insurance.”
The reason why is that the lower interest environment means that people will be able to put more cash into a Whole Life policy with less death benefit.
But this comes at a cost.
So in reality, we have to look at…
The good news is that the new lower 7702 interest rate test rate will allow bigger front-loaded premiums.
This is perfect for someone looking to roll a dead asset into a whole life policy.
Or for anyone who wants to build up the cash value fast.
The barrier of entry might be lower too. Simply put, people may be able to start Cash Flow Banking with smaller policies and stuff more cash into them without triggering a MEC.
The bad news is that you will get a lower guaranteed cash value growth rate inside future Whole Life policies.
So, much more of the cash value growth will be tied to the company’s fluctuating dividend scale (which is non-guaranteed).
What to do right now…
So if you want to try and lock in the higher guaranteed rates before the insurance companies change their products, you will want to act as soon as possible.
However, if you’re more interested in lower premiums or want to maximize how much you can front-load your policy, it may be more advantageous to wait and see what the new products have to offer.
Either way — right now is the best time to get started, because with Cash Flow Banking, the sooner you start, the better.
And for the next few days, you can watch Garrett Gunderson’s Cash Flow Banking presentation on:
Garrett — the founder and Chief Wealth Architect at Wealth Factory — will show you how Cash Flow Banking has been the #1 money-storage system he’s used in his life since 1998 because it…
Best of all, this system works during times of economic turmoil, political chaos, and market crashes.
And this system has the power to future-proof your wealth and keep it safe in 2021 and beyond, no matter what happens in politics, social issues, or the economy.
Cash Flow Banking has created a safe and secure foundation for Garrett’s finances that has never failed him through 5 market crashes and 2 major recessions.
Best of all, he gives out a $100 coupon so you can get his ever-popular Cash Flow Banking course at a deep discount.
And that includes a consultation with a Cash Flow Banking specialist who can help you decide if it’s better to lock in your guaranteed rate right now — or wait for the newer products.
Build the life you love,
The Builders at Wealth Factory
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