Kai-Zen vs. Lionsmark Capital's Rothish

WHAT IS KAI-ZEN?

The term kaizen is a Japanese term that means "the constant pursuit of improvement and efficiency." This term has been used and adopted by Japanese businesses in an effort to streamline and maximize efficiency in business processes. I just so happen to be Japanese myself (ethnically, though born and raised in Southern California).

There has been a lot of buzz in the industry about a semi-premium financed life insurance program called Kai-Zen wherein the client pays a flat dollar amount for five years, during which time a lender funds the same amount into the policy. Then in years 6-10, the lender funds 100% of the premium, and the client accrues interest from years 1-15, with a loan exit in policy year 16. At this point, the client takes tax-free income drawdowns, creating a retirement income stream. There is nothing “wrong” with the Kai-Zen structure, however there is a much more efficient way to accomplish this goal – one that yields better returns for the client that we developed called Rothish.

WHAT IS ROTHISH?

Rothish is not a Roth IRA, however the gains and drawdowns are taxed similar to a Roth IRA (hence the term Rothish). It is a proprietary life insurance policy design which uses “delayed” premium financing in a very conservative manner. In the Rothish structure, the client funds non-financed premium in years 1-5. Then in years 6-10, one of our eighteen lenders funds 4X what the client funded in years 6-10. The loan balance is charged interest, however the interest is capitalized back into the loan balance. The third-party lender loan is paid off using the policy value in year 11, and income drawdowns can start as early as year 12 (unlike Kai-Zen wherein the loan payoff isn't until year 15-16, and policy drawdowns don't start in year 16-17).

ROTHISH vs. KAI-ZEN:

The other fundamental difference between the two programs is the Kai-Zen design uses a high early cash value rider, which comes with an additional expense, causing drag on the cash value accumulation. Rothish does NOT use any such riders or “trick plays” in order to eliminate outside collateral requirements. As a result, both the cash value accumulation and the retirement income drawdowns in Rothish outperform the Kai-Zen.

CASE STUDY COMPARISON:

In one example – comparing both designs for a 50-year old male contributing $100,000 per year for five years – I created a clone for the aforementioned competitor's loan design. For the purpose of this article, we will call it the K-Design. In the K-Design, we used the same carrier's IUL product in both loan designs using the same health rating, blend ratio, and index allocation. We also started income drawdowns in the same policy year 17 (since the K-Design showed a loan payoff in policy year 16 and didn't start income drawdowns until policy year 17). To be clear, we used an actual Kai-Zen proposal that was given to us by an advisor that wanted to see an apples-to-apples comparison and recreated a new carrier illustration using all the same inputs and assumptions.

Here's what we discovered in comparing the two different loan designs:

RETIREMENT INCOME DIFFERNCE:

Rothish created $95,522 annual retirement income (compared to the K-Design’s $90,324). Comparing total income drawn down (between ages 66-89), Rothish created $124,752 more cumulative income than the K-Design.

TARGET PREMIUM DIFFERENCE:

Rothish also created $102,434 of target premium (compared to only $81,940 in the K-Design).

COMMISSION PAYOUT DIFFERENCE:

Rothish commission pays out in lump sum as soon as the policy is issued (compared to the K-Design which would be paid out gradually over a 6-year period). This spread-comp is due to the high-early cash value rider the K-Design uses, whereas the Rothish design does not need a high early cash value rider in order to accomplish a zero outside collateral goal due to financing being delayed until policy year 6.

COMPARISON: ROTHISH vs. NON-FINANCED POLICY

We also compared the Rothish design to a non-financed 5-pay using the same carrier's IUL product, with the same exact $100,000 client contribution for these five years. The target premium of the non-financed policy was only $65,392 (compared to Rothish’s $102,434 target). In addition, the initial face amount of the non-financed policy was only $2,000,000 (compared to Rothish’s $3,132,948 face amount).

Here's a brief summary grid of the fundamental differences between a Non-Financed IUL, the K-Design, and Rothish:

When it comes to generating a tax-free retirement income stream using life insurance as the underlying product, there really is no comparison. The Rothish design yields much better outcomes than a non-financed policy, as well as yielding superior outcomes compared to the K-Design.

To watch a full-length webinar that shows a detailed comparison of both designs, CLICK HERE.