A lot of agents will probably tell you simply replace the old Ohio policy with the best performing whole life policy you can find from a true mutual company. But wait a second, there’s a problem with that. 

Remember, you’re supposed to get a buyout from Ohio National! Well, if you replace the policy, then you lost your ownership in the company. Not only that, if we do an RPU (reduced paid up) or you stop paying premiums, that’s going to reduce the amount of buyout you’re probably entitled to.

So we want to keep paying premiums for a while on the Ohio National Policy – get the maximum dividends you can buy. And not only that, but when we look back at the history of companies that demutualised it took a little while for their dividends to fall off a cliff.

Nobody knows how long it will take. But we really want to squeeze as much juice out of the Ohio policy as you can, but probably simultaneously start a new policy so that you can have that infinite banking vehicle – you can have the tax exempt retirement vehicle that’s going to be robust in retirement.

And we found with the Ohio policies, they really start to peter out around retirement age 65, which will give a lot of you a good ramp up period for a new policy.

But you’re thinking “Wait a second, I don’t have the money to pay premiums on my old policy and the new policy”. Well, maybe you do, maybe you don’t. But we have these turnkey cash value line of credit programs almost like a HELOC.

But it’s turnkey for life insurance, there’s multiple lending institutions that will do this, they’re very favorable rates, three and a half at a minimum, sometimes as low as 3%. And we already saw that the Ohio policies are performing better than that. And hopefully they will for some time.

So you’d be getting positive arbitrage on this side of the fence. And it won’t take too long before you’re getting positive arbitrage on the other side of the fence.

And I know there’s that acquisition period, those first years of the worst years with the new policy. But remember, you’re getting the buyout money from Ohio National that can help subsidize that.

This is infinite banking at its finest. You have multiple bites at the apple, you have your cash value working in multiple places. While a lot of times people are buying real estate or investing in their business, this time, you have two very stable assets on either side, and you’re growing the equity in the new policy. So you can still do those other things like real estate, grow your business, or whatever, and still have a robust policy during retirement that you thought you’d have.

I know a lot of people get skittish when I say the word loan or borrow, but this is my new leverage calculator. And let’s just test the efficiency of this strategy.

So what I’m going to show is an initial loan of $15,000, and then annual loans of $15,000 a year for the next three years after the first year. So four years total. And we’re just going to say we’re going to use the ball and we get a three and a half. And let’s just say we’re only going to get growth of four. And remember, this could either be either policy, you’re getting growth from both Ohio and Penn.

But if it’s just one, what I want you to see is your total that you borrowed over the first four years is $60,000. But the total interest paid, we’re paying interest every year at three and a half percent is $28,000. And the total growth is almost $42,000.

Now you think oh, that’s not great. I’m paying all this interest. But remember, for paying all this interest, this is your equity on taking that loan, but your IRR (your internal rate of return) out of all your out of pocket cash flow, which is not $60,000 or $15,000. It’s just the interest that is to borrow. The IRR, you would think would be 0.5% – 4% growth rate, less a 3.5% loan rate. It’s actually 5.23%. Now let me just explain to you what that means.

Every year if we borrow at 3.5% for $15,000. The first year, it’s $525. The second year, it’s $1050. Because there’s two $15,000 loans. Then $1575, then $2100. And then there’s a $60,000 loan outstanding.

We use that to pay premium, but all we did was pay interest and we just continue paying interest. I understand that interest rates could go up, maybe they will, maybe they won’t. But if interest rates go up, what else should go up? Probably whole life dividends too.

And again, I’m using 3.5% – we might be able to get this down to 3%, possibly. But just comparing this of these cash flows, you would have paid $28,000, you got almost 4.2. And it’s saying that you would have to put these cash flows in this order and earn 5.23% to have $42,000 of equity.

This is very, very interesting.

Well, what happens if we get a lower loan rate, let’s say you qualify for the 3%? Well, look what happened to our our IRR, it’s 7.22%. Why? Because instead of paying $525 and $1050, we’re paying a lot less interest, and instead of paying ongoing $2100, we’re paying $1800.

And so we get the same amount of equity, that equates to a higher IRR. Well, the growth rate of the whole life policy and the new Penn policy was closer to 5%. Let’s just say if it’s 4.75%, what’s our IRR now it’s 10% why we’re still paying the 3% on the $15,000, $30,000 and so on.

But our equity is now more! Why? Because we got a higher growth rate. So you can see that this is an attractive proposition.

And don’t forget, we’re just showing arbitrage off one policy. What if you’re getting arbitrage off both?

So this is what we plan to test for clients that have these Ohio National Policy. You’re not getting any younger and you’re probably not getting any healthier. Ohio National is probably not getting much healthier for you, as a whole life policy holder that is, but this is something we can act upon now.

And we can test and measure what this will look like for you. If you were able to keep it, get your buy out, earn your dividends if it makes sense. Pay your premium if it makes sense, if not RPU it. Get your guaranteed growth at the very least, and leverage that equity into a new policy.

I encourage you to book a call on our calendar so we can perform this in-depth analysis. And if it makes sense for you, maybe we can help you realize the dream you initially had when you took out that Ohio National policy.

I hope to talk to you soon!