What is Bank On Yourself®?

What is Bank On Yourself?

Bank on Yourself®  is the creation of Pam Yellen and is a process of using whole life insurance as a means to finance major purchases.  The claims made by Bank on Yourself® suggest that following the program will unlock hidden wealth secrets employed by savvy investors and business people. But does it work? We get …

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What is the 1035 Exchange?

What is the 1035 Exchange?

The 1035 exchange is a tax-free transfer of cash values from one insurance contract to another.  The exchange also carries the cost basis from the old contract to the new one.  Functionally speaking, the 1035 exchange is a great strategy current life, endowment, and annuity policyholders can use to purchase a new policy with better features than their old policy while bringing over the value from the old policy with no tax consequences for making the change.

However, there are several important rules you must understand before you decide to replace an old insurance contract using the 1035 exchange.  Ignoring these rules could result in unfavorable consequences leaving you worse off.

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Whole Life Insurance Pros and Cons

First, I feel the need to provide context for this post. 99% of our clients want to use cash value life insurance as an asset class. Which means people need to distinguish whole life insurance from indexed universal life insurance.

Yes, there are other products.

But none that we feel are worthy of consideration.

Which is better?

What are the pros and cons of each? Why would a person use one versus the other?

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TEFRA DEFRA TAMRA: How Taxes Effect Life Insurance

life insurance policies have tax rules

Life insurance enjoys some unique tax benefits, but it also faces limits imposed by legislation we know as TEFRA DEFRA and TAMRA.  These pieces of legislation established specific guidelines as to what you can and cannot do with life insurance.

Each of these pieces of legislation creates rules that agents, policyholders, and people looking at whole life or indexed universal life insurance (or any UL product) should know.

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2015 Operational Cash Flow Growth for Whole Life Focused Life Insurers

We’ve reported on operational cash flow among life insurers in the past and note that we hold this metric in high regard for a multitude of reasons.

Our philosophy is that operational cash flow shows us true profitability of a life insurance company, especially among whole life focused insurers. Why is that? Well, it's primarily because life insurers have a unique income reducing option at their disposal with policyholder dividends.

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Whole Life Insurance Five Year Investment Income Trend

Investment income is a huge profit driver for life insurance companies.

We've spent a lot of time analyzing and reporting on overall investment yield trends for life insurance companies, but that analysis only compares the raw yield insurers achieve on their managed asset pool.  It's possible that a declining yield simple indicates a de-risking strategy.

Investment income is not necessarily declining and the insurer is under no real financial trouble.  In fact, we've made this argument several times when discussing these trends and others.

So if we instead look at

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Five Reasons Whole Life Insurance is Better than a 529 Plan

 

The 529 Plan began to materialize in the mid 1990’s taking inspiration from prepaid tuition programs in the state of Michigan.

Since the initial formation it has become the dominate recommendation among financial gurus for college savings in the United States—despite President Obama’s suggestion that we end the tax free distribution 529 Plans enjoy during his 2015 State of the Union Address.

Despite the overwhelming support the financial media expresses for 529’s Americans still overwhelmingly choose basic savings accounts to save for college.

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The Power of Whole Life Insurance in a Down Market

 

A few weeks ago a client of ours (we’ll call him Ted to protect his identity) reached out to us looking to take a policy loan from a whole life policy he owns.

A unique and, arguable rare, opportunity arrived on his door step (literally) and he needed cash. The interesting part of this story, though, is not that whole life cash values were available to him so that he could seize the opportunity but rather that he had plenty of other money he could have used instead.

There was just one problem,

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Risk Adjusted Return for Life Insurance Assets – Whole Life Insurance

I personally take risk adjusted rate of return very seriously. My focus on it largely comes from the notion of taking calculated risks to achieve various levels of return. For example, one might make a killing placing his or her entire life’s savings into a pink sheet stock, but risk exposure relative to the anticipated return is likely extremely unattractive.

One of the elements we find so attractive about life insurance in your portfolio is the stellar risk adjusted rate of return. But how do various life insurers themselves rate when it comes to the return they achieve on their policyholders’ money and the risk they must shoulder to achieve it?

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