There are tools to help you grow financially. In fact, this episode’s guest has four of them! Today, we unlock the gates to financial growth with Dan Thompson, the author of The 4 Keys to Building Wealth. He brings us one of those keys, particularly on how to leverage life insurance policies. Opening the windows, Dan gives us a clear view of why a life insurance policy is the most productive way to build wealth and how you can incorporate it into your path toward financial freedom. So, dive right into this conversation and take your wealth into your own hands with Dan Thompson and Merrill Chandler!
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How To Leverage Life Insurance Policies With Dan Thompson
I’ve got an amazing guest. We’ve got an amazing new studio. Week after week, we’ll be doing more and more shows and getting you up to date with all things fundability. My guest is Dan Thompson. I’m going to create an awesome opportunity for all of our readers to come and understand how to leverage life insurance.
Dan, how are you? Welcome to the show.
Thanks for having me. I’m doing great. It’s good to see you again. It’s been a while.
First of all, Danny and I were high school friends and he won that high school. We go way back. We have a shared cultural background. We’re both in California and went to the same high school in Modesto, California. I blazed out to Utah. You went to Idaho.
I stayed in California for quite a while but then moved to Idaho.
He and I reconnected at a reunion a few years ago. We hadn’t seen each other for many years before that. We’re literally refriended after meeting each other again at a high school reunion. I come to find out I know how to get money and he knows how to leverage life insurance policies that you buy with the money I get. That’s what we’re talking about.
You’re throwing out all these years. You’re aging us. We got some gray.
We got a little bit going on here. Could you imagine us in high school? He did get the girl that I was interested in, Diana Boyd. Bless her heart. She was an amazing part of our group of friends that we were pretty tight. We all went to the same seminary and religious classes. It was a lot of fun.
It was a great place to grow up. I loved every minute. I have no regrets.
Dan, give us an overview. When I asked you before we started, “How do I introduce this?” you said, “Leveraging life insurance.” what does that mean?
I should backtrack a little bit and tell you how it even evolved. When we were fifteen years old, I was riding around in the backseat of my dad’s car. He was with a friend of his. My parents never made a lot of money. We struggled along. One of his friends was very wealthy and he’s long gone. He told my dad that he made $30,000 that month in the stock market. I’m working as a landscaper and a framer making $250 an hour. My mind starts calculating.
This is ‘77, ‘78 or ‘79.
I’m like, “It will take me two and a half years to make that money.” He did in it 30 days. He said he did it in the stock market. From that day on since I was fifteen, I was going to be a stockbroker. That’s what I did. I pursued. School and I weren’t the best of friends. It was a little bit of a difficult journey, but finally, a company hired me. I went for it. I ended up opening up 5 offices and having 60 reps. I was one of the number one producers and all this stuff.
Ambition was never your problem.
After the dot-com boom and bust, I said, “I got to find a better way. This is too difficult.” You’re making money 4, 5, 7 years in a row and then you lose half of it. You keep riding this Wall Street rollercoaster. I had to find a better way. What I did in about 2000 and 2001 was I looked for everything. I ran across this concept. Some people called it infinite banking. It was a good start. It was at least something to learn about. The guy who wrote the book on it, I hung around with him for a few years. What I realized is that they were missing the boat in one aspect. They were building these life insurance policies and then taking loans to buy stuff, cars, boats, and vacations, just wasted stuff.
Instead of going deeper into investing, they would use life insurance to use their cash to buy more stuff.
They called it becoming your own bank and anything of that nature. With the idea that if you save the interest you were paying to a bank, you’d make a lot of money over your lifetime. I started running the numbers. I’m like, “I have to buy 800 cars and pay myself back.”If you save the interest you're paying to a bank, you'll make more money over your lifetime. Click To Tweet
We won’t even talk about your car collection.
I have a little bit of a problem there, but they’re all marketing. I got a QR code on the back of my cars and I’ll tell you why in a minute.
I bought my car in the company, but I don’t have a QR code.
The QR code takes you to my website where I have a video where I show them how you can buy these cars using the IRS’s money. As we go along, I start understanding that leveraging life insurance is probably one of the most productive ways to build your wealth because it’s a capital account that never depletes. If I save money in a bank, let’s say, and then I go buy a piece of property, I have to deplete the bank.Leveraging life insurance is probably one of the most productive ways to build wealth because it's a capital account that never depletes. Click To Tweet
You empty the bank account to buy the asset. Even if it is appreciated, you still don’t have the account.
Whereas if I use a live insurance policy, my money’s always growing and compounding no matter what. I use a line of credit or a loan against the policy to go get the real estate or whatever.
The capital itself is still appreciating inside of the insurance policy.
Constant compounding never stops and I still get to go by the other asset. To give you a couple of examples, this 2023, I bought a student housing complex at Texas A&M. I used my life insurance policy to buy the land and then we’re looking for funding to not only build it but also some long-term financing as well. Where you and I have some synergies is my clients are always looking for opportunities, having capital brings those opportunities and sometimes what’s in the policy may not be quite enough.
We need to buy more policy.
Either more policy and/or having access to additional capital to take advantage of the asset or the opportunity. The bottom line for us is we want assets that cashflow, produce income, and best of all, if we can, get them to where they give us some tax advantages where your funding potentially could help. One of the best investments we’ve found over the years is equipment leasing. It is a great way to get a massive tax deduction. It’s a real simple deduction, but we have a company that manages all the equipment and runs all the distributions, income, maintenance, insurance, and Airbnb for equipment.
I buy a piece of equipment and what can be classified as equipment?
For these guys, I call it BDE, Big Dumb Equipment, the Hyster, forklifts, and trust.
You’re saying I buy it, but then I provide this leasing company the asset to use and the rent out, or otherwise is this a big equipment rental outfit?
It’s a huge equipment rental outfit. It’s an Airbnb of equipment. I own it. It’s my LLC. Everything’s mine, then I get the depreciation off that equipment. As an example, a guy has $100,000. We’ll use that to get some funding and $1 million worth of equipment. He gets an 80% tax deduction. That’s a $800,000 tax deduction in his pocket, which can go against ordinary income and capital gains. Literally, for most people, we can wipe out their tax liability then they take what they would normally give to the IRS and shove it back into life insurance policies, use it again, rinse and repeat.
This is awesome. What I want our tribe to recognize is that capital is the grease and the skids. It makes things easier and faster and, if you do it right, better. What we’re discussing is how we use the money you’re already acquiring. You’re already becoming fundable. Your business is becoming fundable. You’re using your QFE to establish the right framework to be attractive to banks, then we come back now to Dan. If I had $50,000, $100,000, $200,000, or $500,000 in bank loans because that money costs me. In your program, how would I use $500,000 that’s costing me 8% most effectively so that I could have short-term and long-term wins?
I would probably look to the equipment leasing first because that’s an easy fix. It’s a quick fix. You could take those funds and get the equipment. That’s going to give you a massive tax deduction. The money that you would’ve normally sent to the IRS, you can turn around now and fund a policy. Now, that policy’s building up and, in the next year, you can use your policy as leverage to get even more.
Also, to borrow more money.
Keep rinse and repeat.
Do I need to plan to pay my 8% to 9% until it’s tax time? The bank is going to require payment. I need to plan in my budgeting to make that payment, while in the background, the tax deductions are going on or is there a way that I can leverage life insurance to lower the cost of this money?
You can do two things. If you’re going to use the money directly and let’s say it’s an 8% loan rate, you could capitalize it through the loan as well. In other words, if you have $500,000, maybe you use $450,000 of it. Use the other $50,000 for interest over the next couple of years while the tax deductions are coming in.
You’re saying only deploy 80% or 90% of it, save some of the disbursement to make the payments, and then leverage the rest of it inside of the policy or leasing.
As you get your distributions and/or tax savings, you can then either pay back the loan or go get more. Here’s the other thing. You’re going to get about a 15% distribution off of the equipment as well.
Do you mean my share of the rental income?
Yes. Usually, it will offset your loan as well. That’s number two.
We want to make sure that we can offset our payments. We need to save the money. How often do these lease payments come in?
Every 30 days.
We call it a stipend in syndications. They pay a certain monthly amount after a certain period. Whether or not my equipment was being leased, I would get a payment of 15%-ish every single month. If I do the math, we would be able to provide all of our clients to show how much they can use of the money borrowed versus how much they need to save to make up the difference in the leasing equipment payments.
If your borrow rate is 8% and you’re getting a distribution of 15%, you wouldn’t even have to capitalize anything for future interest payments. Because they’re going to start paying you 15% divided by 12 in month one, every month, you should have plenty to cover your income.
It’s to be able to cover the interest payment.
Here’s the best part. Because you used your loan for a business or investment purpose, you should be able to deduct the 8% interest that you’re paying. If you’re in a 40% tax bracket, your net cost of money is now about 5% or 5.5%. You’re getting 15% from the distribution. You should have money to go to dinner, maybe a vacation or two.
I had a big payout so I invested in all the things that I could have deployed, where we could have cascaded it and then ultimately did the software development because we’ve spent hundreds of thousands on our software development. It’s killing it. In the New Year, our fundability software is going nationwide. I did it the wrong way. I spent my cash that way instead of buying. If I have $500,000, do you have a list of equipment that needs to be purchased? I’d literally go, “On line fourteen, I like that one. The big tires.”
They work with you directly and say, “In Florida, we need this equipment. I’ll buy it.” It’s rarely going to be in your neighborhood. It’s probably not even going to be in your state. It’s your LLC, money, and equipment. You get the distribution for not only the bank payment but also your share of the distribution. It’s a pretty well-run machine.
I get 80% the first year, which is how I stay out of Uncle Sam’s pocket or put my money in his pocket. What do I do in year two? How does it split the rest of the depreciation or am I buying a new piece of equipment to get the same, so pretty soon I’m going to own my own equipment rental yard?
What will happen is for most people, the remaining depreciation still offsets the distribution. It should be a non-taxable event for five years. In five years, they’re going to sell the equipment, rinse and repeat.
We need to get rid of the old equipment and buy new equipment.
My dad and I had the same kind of raising. We’re struggling when we were growing up. The retail store or chain closed down and he had to go find a job. He started managing an equipment rental yard. I’m sitting here going, “The chickens come home to roost. I’m getting into the equipment rental business. Here we go. Dad, I got you. We will make this happen.”
The other side of it is you’ll most likely have more depreciation than you can use. Most of our clients are getting, let’s say, $1 million worth of depreciation. They only need $400,000 or $500,000 to wipe out all their taxes. You can carry that forward for years and years until you can use it all up.
We get to keep rolling it forward because it’s always zero. Whatever we have left over, we can move to the next year.
A lot of our clients can go ten years. They bought so much equipment and they’re doing it because the distribution’s a nice distribution. It’s hard to find 15% that’s going to be offset by depreciation to put in your pocket every month. It’s a great retirement asset.
Give us an example of a piece of equipment and the amount of the depreciation. Pick one of your clients without using their name or do. Tell us how much comes in every month to them and then how much they wrote off in that first year.
I’ll use myself. I got $2.7 million worth of equipment. I put 10%. They’re still picking the equipment for me. We’re still on that. We’re still right there. I put $275,000 in, and that will pay me roughly $45,000 or $48,000 a year in income.
That’s $4,000 a month in income, but you only put in $275,000. How did you get $2.7 million?
Bank financing. This is where funding can come in as well. If they like equipment and they can get us some good funding all day long, I would rather have access to capital through funding than have to go apply to a bank and start all over every 2 or 3 years.
What we’re saying here is if you had 2 to 5 banks that specialized and loved equipment financing, that would facilitate this process.
That would be the easiest process. I don’t know what you’re finding in your funding side of things, but banks have tightened up when they’re getting harder and harder even if you bring them a good product or deal. In fact, we like multifamily real estate as well. We’ve been falling back on either seller financing, assumable loans, or doing a big lease back or purchase.
One of the things that we use is commercial lending, which is a different world. It is prime plus 2% or 2.5% on some of these. It’s not horrible. In Fannie and Freddie, it is prime minus 1.5% to 2%. It still beats the rent. It’s still far less than the rents that would be in the property itself or that would deliver.
Most multifamilies will pencil in at even a 10% financing rate if you buy them. For the student housing I was talking about, we could probably pay 11% or 12% and it will still cashflow because it’s a good piece of property.
They’re saying what you have found is it comes in with 10%. That’s a 2% or 5% that you bring in. They pull in the 90%. You buy the equipment. You’re getting $4,000 a month cashflow. I think that covers the 1.7%. What’s the amortization? 10 or 15 years?
It is ten-year amortization then we usually pay them off and sell the equipment in five years.
Those are numbers that I can work with. That’s leasing a loan. How would we bring in the life insurance policy? Do you use IUL or Whole Life? What do you use?
We usually do a blend, the IUL and Whole Life. The reason why you want the life insurance is because eventually, you want that to be your capital account. That $275,000 is my life insurance.
You took a loan, which is subprime against your life insurance and then you’re able to use that money as what you’re weighing in on this deal.
I’ve got the deduction on the interest for the loan on the life insurance, but my policy’s still growing because I never touched my money.
The principal is still accumulating. From what I’ve heard from others because I’ve studied a little bit, but I’m only a novice, aren’t you making quite a bit of return on the principal itself?
My return should be greater than my borrow rate. I get to deduct the interest that I’m paying. What I like about it more than anything is that it’s a rinse and repeat because I’ll take the distribution, put it back into the policy, and then next year when I need more equipment or two years from now, I can go again. My return got better from using the policy. Let me say, a 15% return distribution, if I don’t use my policy, using my policy, jumps up to about 18% to 18.5%.
It’s because you’re under prime.
I got compounding over here. I’m going to get a greater tax deduction and I’m going to still have my money compounding. Fifteen percent is not a bad return. By simply running it through the policy first, that jumps up to 18%.
The longer we talk, the more I regret the decisions that I made in the past. Remember, I said I’m my own crash test dummy. I learned the hard way. How would someone get ahold of you? What’s something that they could watch now without committing themselves to talk to you or your team? Do you have someplace that they can go to get an idea? It’s 10:00 at night, the kids are finally in bed, and they’re like, “I want to watch this.” Is there something we can watch?
I have a YouTube channel called Wise Money Tools. I’ve got well over 600 videos. You can binge until the day the cows come home. We usually have a link where people can download my newest book. In there, we talk about time-compounding leverage and tax advantages. That’s the easiest way to build your wealth. The best return you can get and the easiest money you can make is not having to pay taxes.The easiest way to build wealth is through time, compounding, leverage, and tax advantages. The best return you can get and the easiest money you can make is just not having to pay taxes. Click To Tweet
That’s a 30% to 40% return.
Put that in your pocket. You can do very conservative things. You don’t have to take a lot of risk. You don’t have to roll the dice in the stock market. 401(k)s aren’t turning out like people thought they were going to. As they say, the chickens are coming home to roost now, and it’s not happening. People are much better off not paying Uncle Sam and then taking this into their own hands, having their own control. I love your funding because if people have access to capital, they get to take advantage of opportunities that are out there. Those who don’t have capital sit there and go, “How’s that guy do it?” It’s not that hard if you can grab some dough.
I firmly believe in the school of hard knocks. I want to leverage that so my crew doesn’t have to live from what I did or I want them to be able to learn from what I did. What would you say is one of your greatest lessons where you or your own crash test dummy man that you kept running into the wall until you learned something but it changed your life when you learned the learning?
The first fifteen years as a stockbroker, talk about knocking your head against the wall 50 times a day. That was a great lesson because it did push me into more predictable things. I always say I cursed my kids with this entrepreneurial, “Never get a job.” None of my kids have ever had real jobs, but now they leverage their life insurance policies into businesses. They buy businesses like I do equipment leasing. Even one of my sons opened his own entrepreneurial school. It’s a private school. People pay him to learn.
It’s to learn all the stuff you taught him, “We have a guest speaker, my father Dan Thompson, who taught me everything I know and paid for my education, my room, and board.”
I wish he thought I taught him everything he knew, but no. There are many ways to pound your head. I hate to say we got the secret sauce like it’s some magic. It’s not magic, but I’m telling you we got the secret sauce. It’s not as hard as people make it seem.
What you’re saying is the secret sauce, we know that it’s ketchup and mayonnaise. You blend those together and you have fry sauce and it’s magic. It is just ketchup and mayonnaise. You got to put them together way.
That’s right that’s why I wrote called The 4 Keys To Building Wealth. When you put the ketchup, mayonnaise, some mustard, and some relish, you get time-compounding leverage and tax advantages. If you put those four together, you have yourself a winning combination to build your wealth.
If some of my clients are done-for-you services or they want coaching or something, we get your book. They love your book. They watch one YouTube video and say, “I want Dan on my team.” Do you offer something where you coach people or do you have group coaching? How does somebody work with you if you do that, or do you pass that and you say, “I don’t even do that anymore. I make too much money on my own.”
I certainly do. We do have about 50 advisors across the country that work with us. We have a staff of 45 or 50 in Boise. We white glove handhold all through the process. Our job is, first and foremost, to build and design those life insurance policies as productively as we possibly can, stay within the IRS guidelines, and get those funded, then we start leveraging into equipment and eCommerce, your own business. These are great things to have for your own business to capital management account.
This is where I’m sitting here going, “I could be living off my payout and still investing in my software.” Don’t do what I did.
Double, triple, and quadruple dip. Use the same dollar to do 2, 3, and 4 things for you. Take advantage of not paying taxes and you’d be surprised.
How would somebody get ahold of you for your coaching or for this customized plan builds and everything?
He gave you his personal email. He’s down from Boise on other business, but we decided to belts and suspenders, put them together. Thank you for coming.
It has been fun. You’re going to have to join me on my YouTube. We’ll do a double-do and double-share.
Thank you very much. Readers, thank you for joining us. Make sure that you check out Wise Money Tools. Getting the money has been the hard part. You guys know that as a client or a student of Get Fundable, you now have access to money. Let’s 2X, 3X, or 4X it and use that same money in multiple ways. Find out how. Go check out Dan’s stuff. It’s a pleasure to be here. I love you. Make sure that we take advantage. Do not be your own crash test dummy. Please don’t take any liquidity events and bury yourself. Do not spend your cash. Have an amazing rest of your day.
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