How to Recover Thousands on Your Next Vacation

It’s that time of year…Summer Vacation!

Vacations are a wonderful way to get recharged, enjoy the wealth of family relationships and create unforgettable memories with the people you love.  Because of this, vacations can be one of the best investments that you’ll ever make.

And here’s more good news:  Just because a vacation is an investment in yourself and your family doesn’t mean it can’t be a good investment of your $$$ (dollars) too.

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There are 3 ways to pay for your next vacation:

1. Use a credit card (or line of credit) and pay it off over time
2. Save your money up to pay for the trip outright, without any interest expense
3. Save your money and leverage your savings to pay for the trip while building a legacy for your family at the same time

Most people pay for vacations with option 1 or 2.  They’ll use a credit card and get the points which is great, but then they’ll either pay interest to the bank (option 1) or lose interest they could have earned on the money used to pay off the credit card (option 2).

Either way these people are back at $0, saving up for the next vacation.

So what about option 3?  By saving consistently in a place where you can leverage your savings to pay for your next vacation, you can create a guaranteed foundation that will ensure that you don’t go all the way back to $0 when you pay for that next vacation.

How can this work?  If you use a Participating Whole Life Insurance policy, it’s simple.

• First, your savings $ become premium $ that you pay to the insurance company
• Next you leverage the cash value of your policy via a policy loan and use these $ to pay for your vacation
  • If you used a credit card to get the points (good idea to do this), now pay off the balance before any interest accrues at the notorious rate for which credit cards are known.
• Third, just as if you had to pay off your credit card on time…now you setup a payment plan to repay the policy loan

Won’t there be some interest on the policy loan?

Yes.  Right now it’s about 5% with most insurance companies.

Does this interest defeat the purpose of financing your vacation with a policy loan?

No, because you come out ahead (even ahead of just paying cash) in 3 ways:

• You are able to continue benefiting from the guarantees of the Life Insurance contract while you leverage and use the money elsewhere
  • There is no other investment that I know of where you can get any guarantees like this. With traditional investments, if you need to use the money, you have to pay the penalties and lose any possible rate of return.
• You have the Death Benefit providing protection and a legacy for your family while you save for the future and take your vacation too.
  • Of course, you could purchase Term Life insurance, but that is not a long-term solution. It doesn’t make sense to rely on a “Buy Term, Invest the Difference” approach if you want to have the greatest benefit from your financial plans after 15 years (see our video on Buy Term and Invest the Difference? for details.)
• When you repay the policy loan you can setup your own terms to save extra $ and ultimately start a new policy which will increase your share of dividends and offset interest you’ve paid on policy loans.
  • You don’t have to work any harder to do this…just spread out the payments over time like you would when you use a credit card.
  • Note: It does take time to see increased dividends from a new policy. Some life insurance salespeople claim you will recover every penny of your whole vacation, plus the interest, but that isn’t always true.

Here’s an example: Let’s say you start a Participating Whole Life insurance policy and take a $10,000 family vacation.  You put the vacation on a credit card to get the points.

When you get home you take a policy loan for $10,000 and pay off the credit card so you don’t have to pay 19.99%.

Now you make a plan to repay the policy loan over 2 years.  The insurance company only requires 5% but any extra you choose to pay will be money you can use over again so why not pay the extra % you would have had to pay to the credit card company?  The monthly payment comes to $508.91.

At the end of 2 years you’ll have repaid $12,213.84.  $529.04 of interest went to the Insurance Company so you saved an extra $1,684.80 which you can leverage and use again along with the original $10,000.

Your policy continues growing during this time GUARANTEED (as long as you pay the premiums and interest).  It also provides a death benefit/legacy for your heirs.

The $529.04 of interest paid to the insurance company is offset by growth in the original policy over time.  I ran some numbers on a 50 year old male in standard health to compare the results of financing the vacation this way vs. withholding $10,000 from premium in the first year to pay cash for the vacation.[1]

In year 30 (age 80) the cash value difference comes to an extra $10,369 guaranteed ($21,165 with non-guaranteed dividends).  This is like getting a guaranteed 10.44% rate of return (13.08% projected ROR) on the $529.04 that you paid in interest.

Taking a vacation every 2 years and repeating this process, these rates go down to about 1.78% (guaranteed) 6.07% (projected).  Still a very good return considering you are actively using $10,000 and have purchased an additional death benefit/legacy of ($26,936 to $40,999) during these 30 years and beyond.

Plus remember the “extra” $1,684.80 every 2 years that you would have had to pay to the credit card company but are saving instead?  This is like the icing on the cake…you can use these $ to increase your return by lowering the policy loan balance, purchasing additional policy(s) (not quite enough to do that yet) and/or indulging in a nicer vacation next time around.

Doesn’t it just make sense to fund your vacations this way from now on?

Whenever you can leverage your policy values and get both guarantees, and the benefit of using the money with a legacy to boot…that’s a great time to use your policy, a great time to take a vacation! Now we’re talking about getting the profits of two “investments” at the same time instead of only one.

The bottom line is: Never settle for either/or when you can choose both.

Take the steps you need to make your next vacation a great investment for your $$$ as well as your family’s wealth and well-being.

Relaxing on the beach, skiing down the slopes or exploring new places…wherever your next vacation takes you, you’ll feel better knowing that thousands of $ will be coming back to you and your family because you took a little extra effort to utilize the best strategy.

What? You want to fund vacations like this more than once every two years? What will you need to do? You’ll need to save more. You can increase your premium amount so that the amount of cash values available to you allow you to do what you want to do.

by John T. McFie
I am a licensed life insurance agent, and co-host of the Wealth Talks podcast.
At age 14 I started developing spreadsheet models and software systems to help my Dad share financial concepts with clients. 
Skipped college at 17 recognizing the overinflated value and prices of most college degrees and built more financial software instead (see MoneyTools.net). Still a strong advocate of higher education without going to college.  I enjoy making financial strategies clear and working through the numbers to prove results you can count upon.

[1] $10k/yr initial premium + extra $10k in year 1 for comparison example