Kai-Zen is a strategy that helps your clients maintain or provide security in the event of a chronic illness, premature death or an inability to sufficiently save for retirement. In this episode of Money Script Monday, Sal describes how Premiums are jointly funded by bank financing and the participant or employer, and the power of leverage to help acquire more of the benefits your clients need to protect their future financially.

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Video transcription

Hi. My name is Sal Mendoza, and welcome to Money Script Monday. Today we're going to be talking about utilizing the Kai-Zen strategy for business owners.

What we've done is we've broken this down into three different section. The first section is the funding, and then we're going to move into what is a tranche, and finally, the leverage part.

So why is a Kai-Zen important? A Kai-Zen is important because business owners are trying to retain their key employees.

Let's take a hypothetical, let's say that Max is a web designer. And Max for your companies helps you grow by 40%. Well, you know that there's outside companies that are going to want his talent, I mean offer him more money. You're already offering him medical, dental, and let's say a matching 401k.

What's going to help you as a business owner be unique? This is where the Kai-Zen strategy comes into play. So, let's talk a little bit now about the funding schedule.

Funding schedule

The funding schedule is unique in that there's going to be two participants. The first participant is going to be the personal contribution by either the employee and, or the owner.

It could be set up as the employee, it can be set up as the owner or a hybrid where they're paying the contributions. And the second part of the contribution is going to actually come from a bank. Well, we're going to go out and get that, and I'll explain that in the tranche section.

So let me give you an example. Let's say that we decide to put this in place. The second most important question you're going to get from the owners, "Well, hold on here Fred, or Max, or Jim. How long do I have to contribute for? Is it going to be for 25 years? Is it going to be for 27 years?" And the answer is only five years. Whether you're the owner or the employee, the longest you're ever going to contribute to a Kai-Zen plan is for the next five years.

Let me give you an example. Let's say that the employer and the employee decide that they're going to both help each other. They're both happy working with each other, so they're going to go ahead and initiate one of these plans. Let's say that the employee and the owner each put in $10,000, that's $20,000 a year. They're going to put in 20,000 a year in years one, two, three, four, and five, but here's the great part about it.

The bank is going to do the same because there's going to be a bank that we're going to get involved. And they're going to also pay $20,000 a year in years one, two, three, four and five. But better yet, and this is where it gets really good, is the bank is going to then double that number. So, they're going to put $40,000 a year in years 6, 7, 8, 9 and 10. So that is a little bit about the funding.

Tranche

So, let's say that the web designer has moved forward. He's got everything written out. He decides to move forward with the plan. What makes this so unique is that his policy is going to be one of many policies inside a tranche.

There can be as many as 80, 70 policies, and what they're able to do is our partners, is that they're going to gather all these insurance policies like the web designer, they're going to put them all together. And let's say that the total premiums they're going to be paid is going to be around let's say $10 million.

They're going to go through the strategic partner banks who only, by the way, they don't loan for homes; they don't loan for cars or anything else, they only loan money for insurance contracts. That's where we get this tranche where we put a lot of policies together.

Leverage

And so, if all together it was $10 million, the bank is going to give us $40 million, so all together we have $50 million of total premiums.

Why is this so powerful? Because we move into the last part, is leverage. In my opinion, leverage is the most powerful word in the dictionary next to free.

So, we have this web designer, okay? He already has the matching 401k, the dental, the medical. So why is he going to move forward? Or Why are you going to be able to keep him as a key employee?

It's because of this, cash accumulation.

If he was to do this by himself and put in $20,000 a year, each year, for five years and he was around 35 years old and let's say a preferred rate class, he'd have probably around, hypothetically speaking let's say $80,000 of tax-free income at age 65.

But by using this Kai-Zen plan, he's going to have around $120,000 a year of tax-free income. That is a very significant amount of pay. That is a great retention vehicle that you may wanna talk to an owner right down the street from your place.

My name is Sal, and today I discussed a little bit about the funding, how the owner and, or the employee only have to put in for five years. And then I talked about the tranche, how we're able to pull a lot of life insurance policies then go to the bank and have them pay up to a three times leverage. And then finally, the reason that we do it using other people's money, the leverage and being able to create a lot more tax-free income.

If you're interested to learn more about Kai-Zen, please reach out to LifePro, reach out to myself, reach out to one of the salespeople that you work with. The number hasn't changed. It's still 1-888-543-3776. Thank you, and have a great day.