A Secret About Jim Harbaugh 🤫

This guy has been in the news a lot.

Growing up in Ohio to parents who went to Notre Dame and Ohio State respectively, I was taught important things.

1. Make your bed
2. Be respectful
3. Brush your teeth
4. Be on time
5. Don’t lose to Michigan

Michigan is the bane of my existence and every Saturday I cheer for whatever team is playing against them.

Well, the last couple of weeks have attracted a lot of negative news surrounding the University of Michigan football program. The program has become embroiled in an alleged sign-stealing scheme that involved impermissible, in-person scouting of opponents going back as long as three seasons. Huh, no wonder they were able to beat Ohio State the last 2 years after Ohio State had previously won 17 of the previous 18 games.

But, I am not here to actually talk about what Jim Harbaugh and the University of Michigan have done to violate basic sportsmanship. Or that next week sports fans get treated to THE GAME, one of the greatest rivalries in sports pitting Ohio State vs Michigan.

THE GAME is next Saturday

Instead, I want to reveal a brilliant money secret that Jim Harbaugh and Michigan engaged in.

When Harbaugh extended his contract back in 2016 he did something rather creative. See the snapshot of the ESPN article below.

ESPN article from 2016

The contract outlines that Michigan will pay $2 million a year for seven years. It’s a $14 million loan to pay for Harbaugh’s life insurance.

We know that he will owe the IRS what they call an imputed loan interest by receiving that loan as a type of compensation. But that’s more on the tax side. We’re focusing on life insurance.

Uh oh, I said a scary word “life insurance.”

Most people view life insurance as something you begrudgingly need to get as you grow up, have a family, and want to cover the debt, future income losses in the event of your passing, house mortgage, and education expenses for your kids.

People do not view insurance as an “investment” because:

1. They don’t know how good of an investment it is.
2. Their only exposure to life insurance has only ever been term or whole life policies
3. The government has regulations preventing insurance companies, agents, and their staff from advertising life insurance as an investment.
4. Insurance companies offering the more “investment” type policies are legally restricted to showing too much upside as it could run other companies that don’t offer the same policies out of business (ex. Stock market has historically grown ~10%/year but insurance policies can only project 6% growth)

However, sophisticated investors who want to be smart with their money look for “investment opportunities” in more alternative ways, like life insurance.

If Harbaugh was smart here is what he did:

What Michigan and Harbaugh likely did was invest in an indexed universal life policy, which is designed to rapidly build cash value.

The growth of the cash value is tied to a market index, allowing you to track your gains. However, it is not directly invested in the market, protecting against potential crashes that could deplete your cash value. The policy sets a growth floor and ceiling.

With a 0% growth floor, your money is always safe. Even if the stock market collapses, your cash value remains intact.

On the other hand, the ceiling prevents the insurance company from facing excessive liabilities during volatile market conditions. Typically ranging between 12 and 14%, some policies even have no limits.

It’s highly unlikely that Harbaugh would have chosen whole life insurance, as the cash value accumulation is relatively weak. Variable universal life policies were popular in the 80s when you had people like Jordan Belfort aka Wolf of Wall Street pushing crazy investment products. However, they directly invest your cash value in the market, making it susceptible to market downturns.

Another crucial aspect is ensuring that the life insurance contract passes the 7-pay test. Failing to meet this requirement results in the IRS classifying the insurance as a modified endowment contract (MEC), subject to taxation. If you want to delve into the mechanics of MECs and the 7-pay test, Think Advisor provides an excellent explanation.

Cash Is King 👑

Cash value is part of many permanent life insurance contracts. It builds over time as you pay your premiums. The type of life insurance determines how that cash value accumulates within the policy.

Most people end up ignoring their cash value. Most people also buy whole life insurance, (I once did that) which builds cash value about as fast as buying a boat. (Newsflash a boat is a money pit.)

Proof I made the mistake of buying a whole life policy

You can use this cash value to pay premiums on your policy or take out loans. It’s essentially the insurance company saying, “you may borrow this amount from us, and we won’t ask any questions.”

But what Harbaugh and Michigan have done is create a policy with a thin life insurance wrapper around the actual “investment” vehicle that is tied, but not tied to the stock market index so that his money can only go up and never go down.

Once he accumulates enough cash in his policy, he can take interest-free and tax-free loans against his policy so that he essentially becomes his own bank. If he becomes his own bank then he never needs to pay back that loan because ultimately that will just be deducted against his own death benefit when he ultimately passes away. As for Harbaugh’s family, the death benefit will be passed on to them 100% tax-free.

There is a lot more I could unpack about this subject and full disclosure I have put in place IUL policies on myself and my baby because these investments, I mean insurance policies are some of the best financial decisions I have ever made.

If you ever want to get a free personal financial audit from me, then schedule some time and we can figure out ways that you can maximize your wealth potential.