financed premiums

Frequently Asked Questions

About the plan

Kai-Zen® has been in existence since 2013, and the expertise behind this unique strategy comes from our extensive experience gained in the area of financed insurance, serving ultra-high net worth families (average $40m net worth) since 1998.

Necessity, is often the Mother of Invention. The company owners of NIW (the company that invented Kai-Zen® ) wanted a way to save more supplemental retirement assets for themselves. We looked at the wealthy clients we had been serving with financed insurance solutions, but instead of estate planning and death taxes, we were focused on our personal problem of insufficient supplemental retirement income.

The facts are, that 90% of successful, highly compensated people in the U.S are saving, on average, only one-third of what they should be saving in order to maintain their current lifestyle in retirement. Many of those successful people spent their early business years building their businesses, or receiving higher education, and couldn’t really start saving significant amounts until their mid-forties. Those facts described our own situations. Our savings rate, much like everyone else, was around 10% of salary. We sat down with many of the best financial planners, all of whom advised us on how to invest our savings wisely, but the numbers showed we’d have to save more than 30% of our current income. None of those planners had a solution for not saving enough in the first place.

Studies show that 74% of the money you will have available in retirement is driven by how much money (capital) you can save in the first place, and only 26% comes from the investment return. To us, all the financial agents were dealing with 26% of the problem but had no solution for the 74%. We needed a way to provide more capital to save for our retirement. The answer was using leverage, to finance a better retirement.

Almost everyone uses a mortgage (leverage) to buy a better house. Most of us use leverage to buy a better car. If we could get the banks, we already use for financing estate-planning life insurance, to help us finance our retirement, it makes sense we could leverage our way to a better retirement. Instead of a house or a car as collateral for a loan, we use a specially designed life insurance policy, optimized for cash accumulation, that allowed the banks to lend in a way that was very attractive and unique. Life insurance policy’s have exceptionally favorable tax properties, not only for accumulation of capital but also for very favorable distribution of funds at retirement. We designed the Kai-Zen® plan to be self-completing in the event of an early death, to provide protection for unforeseen critical and chronic illnesses and also to protect the bank in such a way, that they are more than happy to loan us the money. In fact, they loaned us multiples of the money we personally contributed to the plan.

If you ask any successful person who started with nothing and built a great lifestyle through their hard work and sacrifice, what they financially fear most, it is going back to that much poorer lifestyle in their “golden years.” Simply put, we never wanted to go back to living paycheck-to-paycheck, hoping nothing went wrong. So, what do you do when you understand a subject and are recognized nationally for that expertise? You use it, and we created Kai-Zen®.

The Kai-Zen® plan works. It allows us to save much more, it is conservatively designed to survive terrible economic storms, and will probably deliver double the spendable cash in retirement, than any of the alternatives, at the same risk level.

The Kai-Zen® program offered to you, is the exact plan design that we used for ourselves, our spouses, our employees and where possible, our children.

This is the most common question asked. If it is so good, why have I not heard of this before?

Kai-Zen® is a strategy variation of Premium Finance that was previously only used by wealthy families ($10m+ net worth) and has been used since the 1960’s. We just redesigned and de-risked it so it could be used for supplemental income. Very few benefits agents, however, are familiar with the concept as it was historically just used in estate planning. Fewer, still, would have the specialty to repurpose the plan to this application.

Kai-Zen® is fundamentally different from traditional Premium Finance because the client is not qualifying for a loan or paying interest. Almost all the bank risk has been transferred from the client to the life carrier.

Banks are lending into this structure because they essentially cannot lose money due to its unique design. It is incredibly safe for lenders, far more so than traditional financing of other assets such as property, stocks, cars, or traditional premium finance etc.

The money you contribute to the plan keeps the bank loan secure even in under-performing conditions. The zero floor inside the insurance product means that unlike a stock, bond or property, the underlying asset cannot have an investment loss. For the banks, this is one of the safest loans they can do.

The trust structure and plan set up, combined with the loan safety, allows the lenders to not have to underwrite you financially for the loan, which is a unique feature.

The IUL insurance product chosen has a very high probability of growing faster than the loan over time, which gives the lenders high confidence that they will get their money back and not incur reputational risk.

The stress-testing allows the lenders the comfort to add up to three times more cash into the plan because they know their loan is safe.

It is the extra money, over and above your contributions, that boosts the return on your investment.

Life insurance is the only asset with these unique tax advantages (tax code section7702)

So why has your agent not heard of this? Because unless you specialize in life insurance and in particular, the further specialty of financed insurance, you would not have even known this capability exists. Extraordinarily few benefits brokers have that specialty. NIW has specialized in the above since 2000 and it was the need to provide benefits for our own team that gave us the idea. This is why the plan is currently unique in the market.

While the life carrier chosen may add their own qualification requirements the following are the program requirements.

 

Client Income: Greater than $100,000 per year if corporately sponsored, $200,000 if individually funded

Age: 18 to 65

Health: Normal to good health (possible exception for younger ❭ 50, impaired health clients)

Research tells us that 74% of how much you receive in retirement, is based on how much cash (capital) you have in the plan and only 26% is a result of investment return. Put another way, the retirement concern is not about how your investments are doing, it is not having enough money to invest. This underfunding for retirement income is the issue Kai-Zen® is helping to resolve and Kai-Zen® is currently the only plan on the market where you can obtain leverage to this degree, without having to qualify for the loan and make interest payments.

What is Kai-Zen® and how does it work?

Kai-Zen® is a mortgage equivalent for your supplemental distributions in retirement. We don’t think twice about using a mortgage to purchase a better house than we could with our cash alone. Kai-Zen® is the same logic of borrowing to purchase a better retirement plan and secured by a different asset. By using the life insurance product designed in the unique Kai-Zen® way to accumulate cash and reduce costs, it allows the lender to lend on an asset that is even safer than lending on a house. Because the loan is so safe for the lender, you don’t have to qualify for the loan, and you don’t have to make interest payments unlike a mortgage for a house. Statistically, the extra money contributed to the plan, gives participants 60%-100% more distributions later, compared to a self-funded plan.

Is the plan portable?

The plan itself is fully portable and controlled by you. This would only change if your employer paid for the plan and added vesting on top of the plan. If this is the case, they are required to advise you of this prior to starting the plan.

Kai-Zen® was first conceptualized in 2012. However, the underlying financial approach has been utilized by wealthy individuals and estates (typically $10M and over) since the 1960s. Kai-Zen® is a new variation on this approach –allowing highly compensated individuals, like you, to participate in this type of leveraging for the first time. NIW first created the Kai-Zen® strategy to benefit the owners and employees of NIW, by designing Kai-Zen® to be affordable and to enhance their employee’s supplemental retirement benefits, while providing valuable protections for them and their families.

Providing you are below the age of 65, and have maintained your good health, the answer is Yes.

If you are an employee of a company offering the Kai-Zen® strategy as a benefit, you will need to check with your employer for eligibility.

If you are an individual participant, we offer participation every two months.

Having more money lent into the plan on extremely favorable terms, gives you the opportunity to receive more benefits than a self-funded plan. In addition, the plan provides two distinct benefits

Protection via a permanent life insurance policy with living benefit riders that can provide benefits in the case of:

Chronic illness (Assistance with daily living, bathing, eating etc.)

Terminal illness (Where death is expected within 12-24 months. Terms varies by state).

Some carriers have additional living benefit riders available, please see product details tab under “How It Works”

Asset protection. In most states, policy cash values and death benefits are protected from creditors. The trust is located in Nevada, as Nevada provides excellent probate provisions and creditor protections on life insurance policies.

Tax-advantaged distributions in the form of policy loans from the life policy. By taking policy loans, secured against the policy cash values, there is no tax, provided you don’t surrender or lapse the policy. This provides you considerably more spendable money vs alternative choices. You are getting the investment return on your personal payments into the plan and the incremental additional income resulting from the bank leverage.

The quick answer is Yes, and Yes. Up to age 55, it makes the most sense in terms of return, to do a second, third or even a fourth plan assuming you can qualify for the extra insurance coverage. This gives you flexibility to use each Kai-Zen® for different planning objectives. After 55, or if you become unhealthy, putting more money into your current plan is an option.

No. You can do a smaller plan with lower expense, to the plan minimums, but you cannot reduce the contributions for a given amount of insurance. The reason is that the planned payments are what enables the plan to pass its stress tests which in turn, provides the bank comfort that the plan is unlikely to fail. The payment amounts are precisely calculated. If you reduce the contribution amount but not the insurance, then the costs inside the policy will increase the chances of a loan default during a stressed condition without the money to cover those situations. So, if the contribution amount is higher than you would like, reduce the size of the plan so that you are comfortable making all five contributions. You can always do another Kai-Zen® plan once the five contributions are done.

Maybe: The person being insured needs to be over 18 for the plan. They also must justify the amount of insurance being obtained. If they can qualify for the insurance minimums of the plan, then the parent or grandparent may be able to fund the plan. This would require an exception but has been done. Please contact your agent if this desired.

You are required to make a contribution, each year for five years, complete a life insurance application (which may include medical underwriting) and sign all the necessary trust forms.

Yes. You can advance contributions to your trust account. You can pay all five years up front, or just a few years, depending on your preference. However, the advanced contributions sit in your trust account and is not paid into the policy until needed to ensure it conforms to certain specialized insurance tax rules.

While you can pay contributions for more than five years, you must pay the initial five contributions in your plan design or the bank may pull the loan. The policy is the only security for their loan and your contributions provide the security should under-performance occur.

The minimum contribution amount is $20,000 per year plus trust fees ($1350 – see trust section on fees). You can contribute as much as you like over that amount, if you qualify financially for the insurance coverage.

If the annual contribution can’t be made, the lender may call the loan. At that point, money can be deducted from the policy or it can be surrendered to repay the loan. If there are any remaining funds, they will either continue to fund the policy or be returned to you based on your preference.

From a program perspective, No, but there may be a minimum death benefit imposed by the life carrier chosen. The program has, instead, is a minimum contribution. Some carriers have minimum death benefit requirements that may restrict going below a certain death benefit amount.

This strategy has 10 premium payments. You will make roughly half of the first five premiums. The bank lends you the other half of the premium for the first five years. The bank pays the full premium years six through 10, giving you up to a 3:1 leverage. Your contributions are sent to your trust, first, and then to the insurance company.

The plan requires five annual contributions from you. Currently the first year’s payment needs to be up front. Thereafter, monthly payments can be made into your trust for the following years. As long as the necessary annual contribution is in your trust account 30 days prior to the policy anniversary, you have flexibility regarding paying monthly or annually.

You can do either. Once established, your trust has its own bank account. You can send checks, or electronically wire the money into your trust account. Make sure that the check you send comes from your personal bank account not company accounts or accounts of other people, as that would trigger additional “know your customer” requirements at the lender level.

Yes. You will receive a reminder or your annual contributions 60 days, 30 days, and immediately prior to deadlines. Money wired/sent in after the deadline runs the risk of the lender pulling their money out of your plan.

Interest payments are not required as part of the plan. Eventually, the loan principal and interest will be repaid out of the plan’s cash values. If you desire to pay more into the plan you can request this as part of your design (this will require a special design run) and should be requested through your agent. Or, you can start a second Kai-Zen® plan and get more coverage for more return.

Yes, but the bank must be repaid before you can access your policy’s cash value, death benefit or living benefit riders. If you decide to get out of the program, you can either surrender the policy, or pay off the loan and take the extra money. Or, you can take a policy distribution to pay off the loan and use the remaining cash value to keep your policy in force.

While money can’t buy you happiness, it can buy you a comfortable future.

Find out how you can plan for the the retirement of your dreams .

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