In this lesson we come to the most exciting illustration in the book, so far. The young logger says, “This is getting to be fascinating! Is it possible to finance more of my equipment without having to buy more life insurance?” Now, really! How blind can he be? The smartest thing he could possibly do is to buy more life insurance to expand the capability of his system to accommodate all his equipment financing plus any other thing that he might need in his business.
It is the same principle as starting out a grocery store chain. A local grocer started one store about 45 years ago. It worked, and so they built another one in a different part of the city. That one worked, too, so they built another – and another – and another, etc. Twenty years later they had hundreds of stores all over the country.
And consider the banking business – has he not seen branch offices of banks? Why do banks do this? Obviously, it is because it increases the profitability of the business. Otherwise, they wouldn’t do it.
Why can’t people see this when it comes to life insurance – other than the mental block that appears when the subject is brought up? Nevertheless, the agent tells him, “Yes, you can start out by financing three trucks for two cycles, but you are going to have to wait until the cash value gets more substantial to finance any more than that.”
Turning to Illustration 5 on page 62 you will see that everything on this illustration is the same as Illustration 4 through the 12th year. He has been financing 3 trucks and has completed 2 cycles of doing so. Now, the cash value is $365,675. At this point he can finance all four trucks and one logging tractor. Remember, the tractor costs twice as much as a truck.
So, at the beginning of the 13th year he is borrowing $315,600 from his policy and making loan repayments back to the policy of $9,000 per month. He repeats this process every four years down through line 36 (his age 65).
Look at his cash value at his retirement time, now — $3,518,411. Compare this with the same point in the illustration on page 55 ($1,517,320) and you will see that he has made over $2,000,000 by simply doing business at his bank. His cash flow for equipment financing has been the same in all these scenarios.
Look at his retirement income — $225,000 per year for life – it doesn’t matter how long he lives. Again, assuming death at age 85, he has recovered all that he has paid into the policy, plus $3,328,816 in income – and he still delivered $5,528,516 to his beneficiary!! That’s a total of $8,857,332 of benefits and he doesn’t have a dime invested. He recovered all costs at the end of the fourth year of income.
This is a startling improvement over the example on page 54 where the insurance company managed it all. The “gophers” at the insurance company had nothing to do with this improvement. It was all because of how the policy owner directed his cash flow to his policy instead of to the “gate-keepers & toll-takers” at the “Great Wall of China.” He has simply recovered the $2,000,000 that they were making off him when he depended on them for financing. They had the gold – and so they made the rules! After he capitalized a banking system for four years at the rate of $40,000 per year through whole-life insurance, now he had the gold and could make his own rules. The name of the game is creating gold! It is all pretty simple, but the results stagger the imagination! It is a matter of understanding the play in the financial world and deciding which character you want to be in it.
There is one more item to cover before we conclude this lesson. Look at the Net Annual Outlay column, line 36, and you will see that his payment that year is only $79,384. To be “honest banker” with himself he should have paid $108,000. The reason the payment is not up to par is because the policy will not hold it. The policy is a Life Paid-Up at 65 and there is no way to put additional money into it.
Take a deep breath and digest this lesson thoroughly because we will be looking at ways to improve upon this situation in the next lesson. Our logger friend may feel pretty good at this point, but he still hasn’t come close to maximizing his potential!