The Secret 770 Account: What It Is, Why You Should Have One

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For at least the last few years, the Internet has been abuzz about the "secret 770 account" that you simply must make a part of your investing strategy. Well, it's not a secret -- but it should be in your portfolio.

In this case, "770" refers to the section of the tax code covering funds inside a life insurance policy. Using the tax code to name a type of account is common: Think of the 401(k) and the 1031 exchange.

Whole life insurance has been used for generations by corporations and dynasties to grow money safely, securely and in a tax-favored environment.

I was taught by financial gurus 25 years ago that you never put any money into a whole life insurance policy, and that theory is still being taught by some big names today. So when a friend whom I respect showed me how to use a life policy to grow and protect wealth, I spent three weeks trying to poke holes in his presentation -- and I failed. Apparently, what I "knew" previously about whole life insurance was wrong.

If you are buying life insurance strictly for the protection, many advisers will recommend you buy term because it is much cheaper than whole life in the early years of the policy for the same death benefit. For example, if a 40-year-old man in good health wants $500,000 of coverage for his family, he can buy a straight term policy for 20 years for around $500 per year. The same coverage in a whole life policy might be $3,500 a year.

Financially Astute People Count on Many Benefits

If your main reason for setting up a whole life insurance policy is for the death benefit, that policy will differ from a policy whose main goal is to grow cash. Banks and Fortune 400 corporations have hundreds of billions of dollars in whole life. There are many benefits to purchasing a well-done life insurance contract. In fact, you will not find all these benefits in any other financial product.
  • Your cash value balance is guaranteed by the insurance carrier to not go backward, assuming all premiums are paid.
  • You will have guaranteed growth every year no matter how the stock market performs.
  • All growth and dividends grow tax-deferred inside the policy.
  • You have tax- and penalty-free access to your cash through policy loans at any age.
  • There are no restrictions on when loans have to be paid back.
  • Cash value may still increase even on borrowed funds, depending on the carrier.
  • There are no restrictions -- personal, business or investment -- on using your cash value.
  • There are very high limits on how much money can be put inside the policy (though avoid becoming a Modified Endowment Contract).
  • It is possible to overcome the cost of insurance in the first few years and have the policy "self-complete" thereafter by paying remaining base premiums out of cash value -- with cash value still growing larger
  • You can borrow funds out of the policy and pay those funds back with much of the interest getting credited to your cash value, more quickly driving up the cash value.
  • You maintain total control of your funds and cash flow.
  • Access to the cash value is tax-free for the rest of your life.
  • Since all this is done inside a life insurance contract, when you pass from this world, you will leave a large tax-free benefit to your estate (some limits apply).
If you say, "How much is the premium?" I know you are not grasping this concept. I know you understand if you ask, "How much money can I get in the policy?"

Traditional life policies are usually based on the income replacement needs of the insured. Properly designed life policies (or 770 accounts) are built more for the living benefits and less for the death benefit. The more financially astute understand the many other benefits and put as much cash in the policy as possible. The death benefit is the icing on an already fantastic cake.

John Jamieson is the best-selling author of "The Perpetual Wealth System." Follow him on Facebook and Twitter.

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11 Comments

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waxysack

This article here has two opposing videos on the 770 account or Whole Life insurance. One is by well known Suze Orman and the other is a direct response to her by author of Pirates of Manhattan Barry Dyke you can see it here, its fairly interesting http://pennymotion.com/investment-articles/770-account-revealed-tax-free-retirement/ .

July 23 2014 at 2:19 AM Report abuse rate up rate down Reply
xcourt4hand

Most of you people don't understand life insurance and in particular, Section 7702 (Definition of Life Insurance or DOLI) A couple of people got it mostly right.

The question to ask, and this is the most important aspect of this technique, is
"What if I don't want it anymore?" If you can answer that question, then you understand.

July 22 2014 at 3:41 PM Report abuse +1 rate up rate down Reply
kaybea123

banks and insurance companies are the biggest scams. like when they tell you an annuity will pay 8% a year. they pay maybe 1%, and the other 7% is return of your money. can do better with funds, stocks, bonds. real esate. that's where ins cos put your money, and give you 1 %.

July 22 2014 at 11:38 AM Report abuse -1 rate up rate down Reply
dencuddy

Once again, the best advice seems to be doing the exact opposite that Daily Finance suggests.

July 21 2014 at 4:54 PM Report abuse +2 rate up rate down Reply
drbobdez

jdbp—you are right and wrong. You are right that there is no Form 770. You are wrong about everything else. "770" refers to section 7702 of the tax code. A "770 account" is not for everyone, only those who want to shelter wealth. Insurance claims pass tax free so loading an insurance policy is a means for passing wealth to beneficiaries with no tax effect. Dividends on such accounts are considered a return of premium so they accumulate with no tax effect. Borrowing against the cash value of such accounts can, usually, be done at rates considerably below the retail borrowing rate so the policy can also be used as your personal banker — repayment conditions are also far more relaxed than those found with traditional loans. You do have a tax obligation for any interest earned.

July 21 2014 at 3:31 PM Report abuse +3 rate up rate down Reply
kftz105

The access to the "cash value" is tax free because it is your money. And yet, when you die with an outstanding loan, it reduces the deathn benefit by the loan amount. Where is that in the description. Whole life is the most dishonest overpriced product there is. You caouldn't poke holes in his argument either because you are stupid or a shill for the insurance industry. Which is it??

July 21 2014 at 3:21 PM Report abuse +2 rate up rate down Reply
jdbp300

This is nothing more than a money scam. They are basing it off of a nonexistent irs 770 form.
Do not invest in this scam. Save your money instead and invest in mutual funds or stocks. You
can go online and do that yourself. Much cheaper than what they are wanting..

July 21 2014 at 1:41 PM Report abuse +3 rate up rate down Reply
1 reply to jdbp300's comment
Glass Family

Try looking at an Ohio National Whole life policy.

July 21 2014 at 2:22 PM Report abuse -2 rate up rate down Reply
jdbp300

there is no such thing as a 770 account. They are basing it off of a irs form 770 which there is
no such thing as a irs 770 form. It is a scam. All they want is your money. I looked this up
about 3 months ago. nothing but a money scam. Keep your money. Invest in mutual funds. You
can do that yourself. A lot cheaper too.

July 21 2014 at 1:39 PM Report abuse +3 rate up rate down Reply
Glass Family

I use these concepts in my financial practice and the writer is correct. The people that truly understand this concept asks how much can I cram into one of these policies.

July 21 2014 at 12:30 PM Report abuse -1 rate up rate down Reply
glucash22

Another vehicle for the wealthy since the great majority can't afford to put away that much money without getting a tax break at the same time.

July 21 2014 at 10:58 AM Report abuse -1 rate up rate down Reply