CalvinT

I use some more main stream (although little known) methods to secure my financial future against swings in the stock market, and to beat down debt. I want to share some of this knowledge, none of these are specific programs per se', and there are no referrals to be made. Any comments are welcome and I would love a lively discussion, also I would like to hear any other methods anyone uses to keep ahead of money matters.

I know these methods work in the US under current financial laws, and serve me quite well to stay out of debt and control my finances. As far as the laws of other countries, I admit I am quite ignorant and I do not know if any of it will translate.

The first method is marketed under the name of Bank On Yourself. It is in reality a way of marketing the ideas set forth in a book called' “The Infinite Banking Concept” by author Nelson Nash.

The Bank On Yourself marketing gets a little repetitive, and until you venture a little personal information (First, Last name, E-mail) it does not really get to the meat of the matter so I will cut right to the chase in my explanation.

In this system you use a Whole Life insurance policy to do much the same as an ROTH IRA plan, except for some differences that in my opinion are all positive. (I know, I know Ive already lost a bunch of you, Insurance Isn't an Investment vehicle!!!! Don't write me off yet, keep reading, and by all means if you have any questions please ask!!!!)

One of the keys is the type of whole life plan in use, It must be issued from a mutual life insurance company, And it must be a non-direct recognition policy. Also you must utilize a little used rider called the Paid Up Additions rider. If these conditions are not met the policy will still have growth but it will be nowhere near as profitable.

A Mutual Life Insurance Company- is one owned by its policy holders, so some of the profits earned by the company every year is distributed to its policy holders in the form of dividends. The amount of dividends paid to a particular policy holder is increased in two ways. The amount of the death benefit of the policy, the bigger the benefit the higher the dividends. And the time the policy has been held, as the years go on your portion of the dividends will increase.

Non-direct- means if you choose to use funds out of your policy it does not decrease the dividends earned in the policy. Your full dividends can be earned even if you have loaned yourself money out of the account for another purpose!!! Try doing that with a typical savings or stock account.

Paid Up Additions- this is a rider that if utilized will increase the death benefit with every premium payment.

All of the attributes of this policy combine to make a pool of money that is guaranteed to grow year after year, and as your death benefit, and time basis grow, the dividends grow. Also the cash value of the policy has a much better interest rate than most banks (mine is currently at 4%).

OK I will quickly go through the fun stuff of this program, then the few drawbacks.

This is an arbitrary number totally dependent on the amount you allocate to the program over the years. At age 60 you have a combined cash value of 120,000 and 280,000 of death benefit. Obviously you have used after tax dollars to contribute to this program. You decide I am only going to live to be 70 ( I hope you live longer! 10 years is just an easy time frame to make my point!) You can take loans from this policy in the amount of 40k a year and not have to pay any taxes to use this money, as a loan is a non taxable event. The loan does not need to be paid back as the death benefit will cover all outstanding loans at the time of death, also a non taxable event! (This is very simplified, you would have to do some planning as to your own life expectancy, I'm just making a point.)

Anytime before retirement you can use your cash value to initiate loans (that need to be paid back, at whatever interest rate you feel comfortable with, as this increases your cash value, and eventually goes back into your pocket at retirement) There is no loan officer or Roth administrator to ask for the loan you just call your agent and say I need a loan for X amount. (granted you have X amount to borrow) While this loan is active, since this is a non-direct recognition policy, you gain full dividends and interest growth on all the loaned money! Try doing that with a savings or an Investment account.

And lets not forget this is a Life Insurance policy so you also have a death benefit, that hopefully is not needed until this program runs its course and a happy retirement has been achieved.

The drawbacks: This is Life Insurance, you must qualify. If you are in poor health this may not be an option for you, but keep in mind you can hold a policy on someone other than yourself, a spouse, child as long as you have an insurable interest in them.

Also it takes time to fund the program, somewhere between the 6th and 7th year is where this policy really starts to rock and roll, so you have to stick with it.

I guess for me, I like the control I have with this, I don't have to ask permission to use my money, I can use it for other things and it is still working in the policy, and I don't end up paying a ton of taxes at the end of my life.


There is a general explanation available at this website, click here this site is a description of the broad idea of the program. (use the passcode KFYI at the bottom to see the rest, this is not a referral for me it is the tracking for the advertisement used when I first looked into the program)


When I get some more time I will discuss another method I use to cancel interest on any loan I may happen to have.

HeyJude

Calvin, I found your post interesting.

Creating debt for investment can be profitable, done right. I must say though, when it comes to life insurance, I prefer straight term insurance. It's cheap and serves my goal, which is to rest easy and know that my family is taken care of should I keel over.

That's all I have ever wanted from Life Insurance, but it does makes sense to use it as a tool for savings if one finds a good way to do it.

I believe the best savings one can make is to invest in one's debt. I mean, is debt really necessary? If it serves a profit purpose, it could be a wise move, but otherwise, life without any debt is the best. I've copied this extract from one of my websites:

The only way I try to keep ahead of money matters is to stay out of debt first, and only then focus on investment for profit.

It seems weird to me that people who owe big time on credit cards and loans shop around for investments that will pay them xx percent daily or weekly, when they would do well to put that money to better use in paying off their debt first: pure, tax free profit.


HeyJude

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CalvinT

I agree with you Jude, I see alot of people with beautiful big house and nice new cars that are one paycheck away from losing it all, because they are making so many loan payments all over the place, and it boggles my mind why someone would risk the security of their family in this manner.

If I was going for the Insurance aspect of this, myself I would probably go for a term or possibly a universal life, but this is where alot of people get hung up on this bank on yourself scenerio. The insurance policy is just the vehicle, the fact that there is a death benefit is just an extra. Ideally you have loaned yourself all the value out of this account at death to have a funfilled retirement.

I will use my personal worst case scenerio policy illustration as an example of the power of this program. If my policy returns avg dividends (Dividends are not guaranteed but the company I am with has paid dividends every year for the last 104 years) If I do not loan any money to myself and pay myself any interest. My cash value at the age of 65 will be approx $350,000. Having used the paid up additions rider to increase my death benefit, it will be approx 1.7 million, my compounded profit on my contribution over the course of 34 years is 17.5% annualy!!!!!!!
I am 99% guaranteed this, the only way I can lose this is if I fail to make my principle payment (after the seventh year the policy can make its own principle payment, but this stops the increase in cash value and paid up additions) or the company goes out of business, but as a policy holder I have first dibs at any money in case of a business lapse.

But the whole point of this is to have this nice big cozy pool of money to borrow and pay yourself interest, which increases the cash value even more. And while this money is borrowed since the policy is non-direct recognition it gains the same dividends as if it was still in the policy, letting your money pull double duty.

I'm sure it is possible to gain more than this through some well timed stock or mutual fund investing, but with this you will never have a drawdown in your account as long as you make your principle payments, and you can loan the money back to yourself for any reason you want, and not have it affect the performance in the long run, in fact it helps because of the extra interest you should be paying yourself. And there are no capitol gains taxes to pay the government as this was a loan.

Should this be the only step you take for a financial plan? Probably not, but in my opinion it is a very versitile addition to any bigger financial picture.

HeyJude

Calvin, I think it's helpful that you have made this kind of information available here. I for one have never heard about it in quite this way before.

Those who read your post can follow up either with you, for more information, or check with their own life insurance companies to see if anything similar is available to them.

HeyJude

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CalvinT

There are several caveats to checking with your own life insurance company. The company must meet the criteria in my first post, a mutual company paying dividends to its policy holders, it must write non-direct recognition policies.

Agents are usually unaware of this strategy as most of them do not understand the paid up additions rider because, while it gets close to doubling the premium it provides them with no commission so they often fail to mention let alone understand the concepts behind it.

IF you are interested go to Bank On Yourself and Grow Your Wealth Every Year Risk-Free and Tax-Free, Turn Debt into Wealth, and More and read up and then you can submit to a no obligation contact form to a local agent that understands the concepts behind this, because structured wrong it will be classified as a "modified endowment contract" by the government and lose its tax benefits. Until the late 1980's there was not the modified endowment contract test, but then Uncle Sam realized that this was way to good of a deal not to be taxed, and imposed some restrictions.

One other advantage i failed to mention, in case of litigation life insurance is protected, you cannot be forced to use it to pay any court settlements such as a Bankruptcy against you, personal lawsuits, etc etc. Just another safety net of this program.

All tax and legal matters discussed are concerned with current US codes, I do not have any info for any other country.

HeyJude

Calvin. I've had a look at the Bank on Yourself link you provided. I see the information being offered is free and anyone interested in this arena should consider getting it for sure. Thanks again!

HeyJude

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kelvininternet

Hi guys,

I was intrigued by this strategy that i never heard of using insurance so "creatively." I did some quick searches on the net and found this:

Kiplinger.com Community - Loans Against Life Insurance

from kiplinger's forum... after reading that forum, it made sense how the use of this type of insurance APPEARS to make sense... when in fact, it's the insurance company's way of letting them use our money for free.

unless i'm missing something here....

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Kelvin

CalvinT

I read through the Kiplingers forum and I think we are talking about Apples and Oranges, that forum starts out with a brief mention of a loan against a Whole life policy, but then mainly deals with a product called Term ROP.

A quote from Kiplingers "What I was meaning is that since roughly 2% of term claims actually pay out, in essence it would appear they are "borrowing" money from you interest free."

A Term ROP plan has a lower premium than Whole life Ins, and at the end of the term the just the premiums paid in are paid back to the policy holder, there is no growth in cash value or death benefit in these plans.

Regular Term insurance in essence is just giving the Life insurance money with no real hope of getting it back. 99% of term policies are never collected against as the policy holder does not die before the policy expires. Whole life, 100% of in force policies are collected against as eventually 100% of people are going to become deceased.

But once again I reiterate, This Bank On Yourself program is a way to create a hardworking pool of money for an individual to loan to themselves and keep the bank out their pockets. The death benefit is a nice bonus.

There are about two posts in the Kiplingers thread dealing with Whole Life Insurance, #29 and #30 which battle back and forth about the benefits of Whole Life, #29 is close to what I am talking about, he has this statement in his post "And to make this clear, whole life is not an investment...it is insurance" Which in a normal insurance strategy is true. But in the BOY strategy, Since you have chosen the correct type of policy, Mutual company, non-direct recognition with a paid up additions rider, you can loan the value of this policy to yourself pay yourself interest which you would otherwise pay the bank, and have no loss of gain on this loaned out money in the policy.

Also you can Loan this money out to yourself for any other investment opportunity you see fit! Try talking your local bank for a loan to invest in the latest greatest HYIP! (lol, maybe not the most frugel of uses of this money but you get my drift) there is no way they would let you have any money. But with this strategy you are in total control.

Give that forum another glance and if you disagree with my conclusion, let me and we can continue this discussion.

Thanks

CalvinT

Krissh123

Nice discussions. And I certainly agreed with this thread.

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CalvinT

Just a quick update: I've made an 11% increase in this policy in the last year, anybody pull that off in the market? Another great benefit of this strategy, it is not subject to the rolling tides of the market.

Once it is in force, you will always know what the minimum Cash value will be at a future date. It has been my experience with my insurance company that they underestimate this, I have always had more than the minimum.