The Case for IBC by Robert P. Murphy

Author:Robert P. Murphy [Murphy, Robert P.]
Language: eng
Format: epub
Published: 2019-07-28T22:00:00+00:00

The check for 2006 was $3,877.70, for 2007 it was $3,927.28, for 2008 it was $3,973, for 2009 it was $4,015.

So, let’s do some basic arithmetic: Take the annual premium ($388.00) per year and multiply by the number of years the policy had been in force at that point in time (52). That is Nash’s gross outlay. Now, subtract the value of the dividends he used to reduce premiums the first fifteen years. We have now isolated Nash’s net cost of the policy to date (his “cost basis” for the policy).

These dividend checks were all income-tax-free because they were less than what Nash had paid into the policy over the years up to that point. However, in July of 2010, Nash got a letter from State Farm requesting that he furnish his Social Security Number to make sure their records were correct, because by that point Nash had recovered all the cost basis of the policy. Therefore, all the dividend checks in the future would be taxable, since they would represent money above and beyond what Nash had “put into” the policy. Nash responded by directing them (please notice that Nash did not request them to do so—he gave them orders) to change the dividend election back to purchasing paid-up additional insurance (again, this was done regardless of Nash’s insurability). By doing this, the dividends from that point on were not taxable, since they were simply being devoted to purchasing additional life insurance.

Now note that if Nash wants to keep drawing spending power from the policy, he can simply take out policy loans. These will not be a taxable event, because a loan is not income. Again, we are here just illustrating some of the power of IBC; you should consult with an Authorized IBC Practitioner to discuss your personal situation.

You Can Make Other Investments With IBC

We think you will admit that the results in the previous section were impressive. But, the very impressive factor is not yet seen! Nash was a pilot in the Alabama Army National Guard in 1971. One of his fellow pilots got “between the rock and a hard place” financially and needed to raise some money.

He knew Nash was educated as a Forester and might be interested in buying the 100 acres of timberland he owned in northwest Alabama. He said, “I’ll sell it to you for $50.00 per acre, and I will finance it for you for ten years.” Nash knew that was a good deal and took it and made monthly payments to him. This was not a speculative venture; it was property that Nash knew something about. (Remember, he was educated as a Forester and worked in that field for ten years.)

About 18 months later, the man called Nash again and requested that they get together to talk. He said, “I underestimated my need for cash. If you will just pay off the debt on that land now, I will discount it 25 cents on the dollar.” Nash knew that was a good deal so replied, “Stand real still—I’ll be right back.

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