Cash Value Life Insurance: There is a Right Way and a Wrong Way to do it

Cash Value Life Insurance: There is a Right Way and a Wrong Way to do it

Cash value life insurance is not really like a shirt sitting on the rack at Macy’s, but instead a stock piece of clothing at your favorite clothier. Sounds a tad strange, but here’s my point. Life insurance is a very customizable product. I can tweak a lot of aspects to life insurance (any kind really) to make it do certain things better or worse. This is one of the many things that makes life insurance such an incredible financial tool.

But many people would rather pretend that life insurance is an “off the rack” product that can only be implemented in a very narrow band of options. Nothing, thankfully, could be further from the truth.

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Can you “Bank” on Universal Life Insurance?

Can you “Bank” on Universal Life Insurance

Bank on Yourself® and the Infinite Banking Concept® are well known selling systems that promote whole life insurance, but can we apply the secret sauce of these ideas to universal life insurance as well as whole life insurance?

The purests (i.e. those with a vested interest in promoting whole life insurance) would tell you know. But not one to avoid a fight, I’m going to suggest they may be lying to you.

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051 Why You Shouldn’t Buy…Annuities?

Why You Shouldnt But Annuities

(Complete Show Notes Below)

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In the 51st episode of the Financial Procast:

Infinite Banking Gets Slammed

In a recent article over at ProducersWeb, Roccy DeFrancesco owner of the Wealth Preservation Institute took on the patriarch of all thinks related to infinite banking concept, becoming your banker, bank on yourself et. al.

It seems that Roccy has a bone to pick with Mr. Nash and he highlights several reasons why.  Now, we’re certainly no great fan of Nelson Nash or his minions for that matter—not that everything he says is bad or even incorrect.  But he (Nash) does sensationalize the concept of using cash value life insurance as an asset, something we just don’t feel is necessary.

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Bank on Yourself®, Infinite Banking, et. al. Unraveled

Bank on Yourself®, Infinite Banking, et. al

Our regular readers know that we have a certain love/hate relationship with the whole Bank On Yourself®, Infinite Banking, and their various iterations. We certainly enjoy their work in furthering the cause, the notion that one really can use cash value life insurance as a means to accumulate wealth and that the products actually do make for an incredibly stable and predictable asset.

But…

Our good friends at their respective camps also tend to make a few claims that we think are a tad over the top. While the notion that whole life insurance and/or universal life insurance can be used as a means to acquire the funds for major purchases, and that the use of life insurance to do so has a much smaller economic impact on the individual are certainly all valid, we’ve pointed out numerous times in the past that these systems are totally off base in their suggestion that one can enrich his or her life further by virtue of using their life insurance policy for policy loans. In other words, it’s good…but it’s not that good.

We’ve been asked quite a few times to put the logical discussion into more concrete terms with a numerical example. Our delay in doing so has nothing to do with our unwillingness, and everything to do with lack of time to focus energy on putting the numbers together, that all comes to an end today.

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Infinite Banking Lies About Whole Life and Universal Life Insurance

Infinite Banking

For years, proponents of infinite banking have highlighted a certain benefit behind cash value life insurance. The specific benefit has been more closely associated with whole life insurance, and those directly connected with “The Infinite Banking Concept®” have towed a hard line for whole life insurance over universal life insurance. Last summer, a newsletter released by said company attempted to expose the weaknesses of indexed universal life insurance to promote the superiority of whole life insurance in accumulating wealth and providing security for one’s family. What we’re going to explore today is whether the rally against universal life insurance – and, more precisely, indexed universal life – is a just one.

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Allan vs. Pam: Bank on Yourself

Bank on Yourself

Spring is here, time to enjoy warmer days (if you're with me in the Northeast), blooming flours, and a fight between a so called financial educator who hustles a selling system to insurance agents known as Bank on Yourself and a fee based financial planner who is pretending to be a consumer/journalist.  Here's the story.

So what does this all mean?  Pam is being exposed for the swindler she really is?  Allan is looking to knock some competing savings strategies off the table as he competes for your business?  Or perhaps CBS is just doing what all good media outlets do, selling a story.  Let's take a closer look at this, shall we?

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Single Premium Whole Life Insurance, a Really Safe Place to Store Cash

Single Premium Whole Life Insurance, a Really Safe Place to Store Cash

I'm not going to commit personal finance heresy when I say that as we get older safety of principal becomes way more important than rate of return (personally I believe it's a lot more important even for the younger crowd than a lot of people would have you believe, but that's a fight for another day), today instead I want to talk about Single Premium Whole Life.  Also, as people get older and tend to realize they aren't immortal, life insurance suddenly becomes a lot more coveted.  If you want to set me off on a several hour long discussion about putting things in order before it's too late, ask me about the number of people in the 60+ crowd I've talked to who stress over whether or not they can afford that 20 year term premium and if they think they'll be dead in the next 20 years so they can “make good on the policy” (copious amount of forehead slaps understood).

Enter Single Premium Whole Life Insurance… 

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What About My Good Credit?

What About My Good Credit

Every once in a little while this question comes up and recently I had someone ask me about this and decided it was a good topic to address.  We know that when a policy loan is taken, there is interest charged on that loan that is collected by the insurance company.  Now, since whole life insurance is issued by and large by Mutual Insurance Companies the fact that a policy holder is paying interest to a company he or she owns a part of, and participates in the divisible surplus (read profits) of the company, it's not really a kiss-it-goodbye scenario.  Still, though, some people take literal phraseology very seriously (I've been in two…disagreements we'll call them…over it literal definitions this week alone).  So, for those who look at interest charged on a policy loan and say, “I can get better financing than that with my good credit” is this necessarily the moment when we infinite banking hawks sit back down and say it works for everyone except you Mr. and Mrs. 850 FICO?

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Dividends The Power Behind Recapturing Lost Opportunity

Dividends The Power Behind Recapturing Lost Opportunity

Here's something you wouldn't expect to find written around here: Whole life insurance (at it's core) kind of sucks.  Sure everything is guaranteed, and to some people and in some applications those guarantees are vitally important.  But the thing that drives whole life insurance to the level that makes it an attractive cash accumulation tool for us is what insurance company refer to as the ability to participate in the sharing of divisible surplus, aka dividends.

To be somewhat bold, non-participating whole life insurance is horrendously boring, and probably not worth your time (unless your in your 60's or older and just looking for $5-10k for final expense costs when you die, and if you think that's all it's going to cost, you might want to think again).

The key element that takes Whole Life insurance to the next level is the payment of dividends (participating whole life insurance).  Dividends not only supply your policy with loads of extra cash above and beyond the guaranteed cash the insurance company promises you'll have if you pay your premiums, but they also give you the ability to continue to earn money on your money even when you've taken the money out to spend it.

Earlier in the week we declared PUA's the magic behind Cash Value life insurance.  If PUA's are the magic, dividends are the mana that grant them their magic.

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