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Self Banking Strategy
What Is Self Banking
Self Banking, also referred to as Bank on Yourself©, Become Your Own Bank, or Infinite Banking©, is a financial strategy that involves utilizing specially designed whole life insurance policies to create a personal banking system for the purpose of financing various needs, investments and creating generational wealth. It aims to provide individuals with more control over their finances, increase wealth accumulation, and create a source of liquidity outside traditional banking institutions. Here's is how Self Banking works:
- Whole Life Insurance Policy: Self Banking involves purchasing a specific type of whole life insurance policy, often referred to as high cash value dividend-paying whole life insurance. This type of policy emphasizes the accumulation of cash value over time. The premiums paid by the policyholder are divided into two components: the cost of insurance coverage and the cash value portion.
- Cash Value Accumulation: A significant portion of the premium paid into the policy goes towards building the cash value component. Over time, the cash value grows through a combination of premium payments and the interest credited by the insurance company. This cash value is tax-deferred. Allowing your money to grow tax-free amplifies the compounding effect by allowing your investments to accumulate without the annual reduction caused by taxes. This can lead to substantial wealth accumulation over time..
- Policy Loans: Once the cash value has accumulated, policyholders have the option to take out policy loans against the cash value. These loans are not subject to traditional credit checks, and the policy itself serves as collateral. The loan amount is generally limited to a percentage of the total cash value.
- Financing Opportunities: With policy loans, individuals can use the cash value as a source of financing for various purposes. This can include funding investments, real estate purchases, education expenses, starting a business, or even covering unexpected financial needs. The loans are typically taken at a relatively low interest rate, and the interest paid goes back into the policy.
- Control and Flexibility: Self Banking offers control over the financing process. Rather than relying on traditional banks or lenders, individuals can access their own cash value for financing needs. This provides greater flexibility, especially during times when banks might have stricter lending criteria.
- Continued Growth Loan: One of the unique aspects of Self Banking is a unique feature of some whole life insurance policies that allows policyholders to borrow money against the cash value of their policy while still receiving interest and dividends on the full cash value amount.
- Wealth Accumulation and Legacy Planning: The cash value accumulation in the policy can act as a long-term wealth-building tool. As the policyholder continues to make premium payments and strategically uses policy loans, the cash value can continue to grow. Additionally, the death benefit of the policy provides a legacy for beneficiaries.
- Tax Advantages: Policy loans from the cash value are generally tax-free, as long as the policy is structured correctly. This can provide tax-efficient access to funds for various financial needs.
Is Self Banking a New Concept
The concept of using life insurance policies as a financial tool for banking and cash value accumulation has been around for quite some time and has been advocated by several financial thinkers and advisors. While these ideas share similarities with the Self Banking concept, it's important to note that the exact terminology and strategies might vary among different proponents. The key takeaway is leveraging life insurance for personal banking have evolved over time and have been mentioned in various financial and economic discussions. Different individuals have contributed to shaping and refining these concepts over the years, with Nelson Nash's work playing a pivotal role in popularizing the Infinite Banking© terminology and approach. While the terminology and approaches might differ, the underlying idea of using life insurance for financial flexibility and security has been discussed by various individuals throughout history. Some notable figures who have discussed similar concepts include:
- Benjamin Franklin: In the 18th century, Benjamin Franklin is known to have used a similar concept by setting up a life insurance policy to benefit his favorite cities, Philadelphia and Boston, while also providing for his family.
- Albert Einstein: Einstein called compound interest the "eighth wonder of the world." While he didn't explicitly discuss the Infinite Banking concept, his appreciation for the power of compounding aligns with the strategy's emphasis on leveraging the cash value of life insurance policies.
- Nelson Nash: While he is credited with popularized the term "Infinite Banking©," he himself acknowledged that the ideas he presented were built upon earlier concepts, including those of R. C. Sproul Sr. and Leonard E. Read. He synthesized and systematized the concept in his book "Becoming Your Own Banker©."
- Pamela Yellen: Pamela Yellen, in her book "Bank on Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future©," discussed a similar concept to Infinite Banking©, focusing on whole life insurance policies as a way to achieve financial security and flexibility.
- R. C. Sproul Sr.: R.C. Sproul Sr., a theologian and writer, wrote about the concept of using whole life insurance policies for personal banking purposes, focusing on the stability and guarantees they provide. His ideas align with the concept of using insurance policies for personal banking purposes.
- Leonard E. Read: Leonard E. Read, the founder of the Foundation for Economic Education (FEE), discussed the idea of using life insurance as a source of financial security in his essay "The Case for Life Insurance." His ideas contribute to the broader concept of leveraging insurance for financial purposes.
- Emil Zitelmann: A German author and financial educator, Emil Zitelmann, discussed the concept of "Personalbank©" in his book "The 10 Commandments of Wealth©." This book was published in 2002 and explores the idea of using life insurance for personal banking purposes.
Things to Know
Policy Performance Is The Difference
Policy performance relative to its peers should be the most important factor when you're buying an asset you will own for your Whole Life.
Insurance Agents
Some insurance agents are contracted to doing their business with a single insurance company. Some will try and sell you a policy that pays them a much higher commission. The truth of the matter is most agents either don't know how to properly structure a life policy for self banking or they don't want to offer that product due to a much, much, much lower initial sales commission. Many agents can make as much as 8 or 9 times more on their initial sales commission on the annual premium when they sell a life policy as compared to commissions on a properly structure high cash value whole life policy designed to help you become your own bank.
The Base Policy Is The Key
Your base Whole Life policy is the main growth engine of the cash value. The quality (not the quantity) of your base Whole Life policy is EXTREMELY important and should be the focal point of deciding which insurance company to go with when deciding on your self banking strategy .
The Guaranteed Value Column Shows The Worst Case Scenario.
Yes and no, It would be the worst case if your mutual insurance company never paid any dividends. However, once a single dividend is applied to your cash value, you get an updated and improved version of guaranteed values which applies past dividends received plus their future guaranteed growth. So, zero dividends, ever is unrealistic since the top mutual companies have paid dividends for over 150+ consecutive years through recessions, depressions, inflation, deflation, multiple world wars and even the Civil War for some companies.
Important To Know Whether You Want More Liquidity In Early Years Or Later Years
There are policies designed for maximum high early cash value, and policies designed for higher mid to long term cash value performance. Everyone is different and everyone has different needs and plans. So, what matters when designing your policy is when you want access to cash and how much liquidity you need in early years compared to later years. Most clients want the strongest mid to long term high cash value performance for their Self Banking strategies. If clients need every penny right away, this is probably not the right fit for them at this time. Become your own bank is usually a mid to long-term plan.
What Self Banking Strategies Are Not
- They Are Not Traditional Banking Accounts: Self Banking strategies are not traditional banking accounts. They do not involve depositing money into a conventional bank account. Instead, they utilize specially structured whole life insurance policies to build cash value over time.
- They Are Not Typical Life Insurance: While they involve whole life insurance policies, Self Banking is not a not traditional life insurance approach. Traditional life insurance approach is focused solely on providing death benefits to beneficiaries. When you want to use life insurance to become your own bank, you want to emphasize the cash value accumulation component of these policies.
- They Are Not Always Suitable for Short-Term Gains: Infinite banking strategies are generally focused on building long-term financial security and flexibility. They may not be suitable for individuals seeking rapid or short-term investment gains.
- They Are Not Suitable for Everyone: Self Banking strategies may not be suitable for everyone's financial goals and circumstances. They require a long-term commitment and may involve fees and costs. Individuals considering these strategies should thoroughly understand their features and potential risks.
- They Are Not Direct Investment Platforms: These strategies use life insurance policies as a financial tool rather than serving as direct investment platforms. While they can offer benefits similar to those of other investment options, their primary purpose is to provide a death benefit, financial security, liquidity, and flexibility.
- They Are Not a Substitute for Professional Advice: Implementing Self Banking strategies requires careful planning and consideration. These strategies involve complex financial and insurance concepts. Individuals interested in these approaches should seek advice from a qualified professionals who specialize in this type of insurance.
- They Are Not a Get Rich Quick Scheme: While self banking strategies can provide financial benefits over the long term, and help you create generational wealth, they should not be viewed as a quick path to wealth accumulation. Patience and disciplined financial management are important components of success with the strategy.
Famous People That Used Life Insurance For Self Banking Strategies
Here are a few famous individuals who have used whole life insurance as part of their financial strategies:
- The Rockefellers: The Rockefeller family is reported to have used specially designed whole life insurance policies to manage and transfer their wealth tax-efficiently across generations.
- JC Penney: JC Penney, the founder of the department store chain, used the cash value in his life insurance policies to cover expenses of his department store, JC Penney's, during the Great Depression, ultimately saving the company.
- Max and Verda Foster: The Fosters borrowed money against their life insurance policy to invest in an 80-acre farm, which became Foster Farms.
- Walt Disney: When no banks would give him financing, Walt Disney is known to have borrowed against the cash value from his life insurance policy to help finance the creation of his new theme park, Disneyland.
- Ray Kroc: The founder of McDonald's, Ray Kroc, used whole life insurance to help fund the growth of his franchise empire. He utilized the cash value to invest in the company's expansion after buying out his partners..
- Pampered Chef Founder: Doris Christopher, used a life insurance policy loan to start her kitchenware company, Pampered Chef..
