Utilizing Whole Life Insurance to create a personal mini-bank.
Part One: Utilizing Whole Life Insurance to create a personal mini-bank.
Many years ago a businessman realized that traditional banking practices created tremendous debts for consumers, and the interest on this debt meant that average people paid the majority of their monthly income to banks or other creditors as monthly debt or bills. This business man discovered large insurance companies invented a product over 100 years ago, called Whole Life Insurance, which could be used as a personal bank by consumers allowing them to mske some and eventually all their debt payments to themselves via the loan capability of whole life insurance policies. This businessman was R. Nelson Nash and his original “infinite banking concept” allows you to create your own personal bank to borrow money from and pay back money to, in such a way that you benefit, instead of the bank. I realize this is a totally new idea and you may be skeptical. I understand because so was I when I first heard about it. However, if you study this subject you will realize that the infinite banking system, as originally created by R. Nelson Nash 50 years ago, uses a financial vehicle called Whole Life Insurance to help you create a small personal account, funded by your life insurance premiums, which can be used as collateral to borrow money at fixed, pre-negotiated, simple interest. This small personal account starts small, but can grow quite large overtime. It can be used for both small purchases at first and large purchases later. The beauty of this is in those details; pre-negotiated fixed simple interest loans, secured by the savings account. Plus you can never be turned down and same day approvals are common because your pledging cash as collateral for the loan. Additionally, Mr. Nash created an educational foundation that teaches consumers about this financial tool. Plus the foundation teaches insurance agents how to sell Whole Life Insurance products, which are specifically tailored to provide maximal cash value accumulation to create this cash fund, which is controlled by the policy owner. This system replaces the large commissions of traditional life insurance products with smaller commissions, but more policies, as happy customers tell their friends and family about this product.
It it is ironic that the 50-year-old Infinite Banking Concept, created by R. Nelson Nash, which predates the development of both the Internet and the Blockchain, provides clear, simple, step-by-step instructions to free you from dependence on the modern banking system. It is equally ironic, that the main tool of freedom; whole life insurance, has existed for over 150 years in this country.
Important words, definitions and an important concept.
A “Whole Life” life insurance policy contains as an integral or core component, a savings account called the “Cash Value” of the policy, upon which the insurance company pays the Policy owner a guaranteed rate of compound interest. The guaranteed interest paid is “compound interest” and it accumulates within the savings account portion of the “Whole Life” insurance policy and it is called the “Cash Value” portion of the policy. The policy owner is allowed to apply and receive “loans” against the cash value, for which he pays a “pre-agreed upon” and “fixed rate” of “simple interest” for the life of the policy.
Important Concept:The value of this “cash value” portion is determined by the premiums paid to the insurance company. R. Nelson Nash, the founder of the Infinite Banking Concept, learned that those premiums can be subdivided into portions which pay the death benefit and portions contributing to the cash value. And the portion of the monthly premium which goes to each can be negotiated at the start, to effectively grow the cash value faster, so as to create a rapidly growing pool of money, which could be used to finance purchases, essentially creating a small personal bank to use for the life of the policy, which was designed to last his entire life.
Part a Two: Whole Life Insurance, as a financial tool to build your own “Mini-Bank” was well know and used by multiple generations of farmers in America for over 100 years.
In part two we will review an illustration.
The name “Whole life insurance” is the name a life insurance policy that a farmer took out when he was very young and he used it for his “entire or whole life”, thus it earned the name “whole life”.
A “Whole Life” life insurance policy contains as an integral or core component, a savings account called the “Cash Value” of the policy, upon which the insurance company pays the Policy owner a guaranteed rate of compound interest. The guaranteed interest paid is “compound interest” and it accumulates within the savings account portion of the “Whole Life” insurance policy and it is called the “Cash Value” portion of the policy.
The farmer or policy owner is allowed to apply and receive “loans” against the cash value, for which he pays a “pre-agreed upon” and “fixed rate” of “simple interest” for the life of the policy. Which by design is in effect for his whole life, by design.
Because the loan was secured by the cash value the farmer didn’t need to submit to a credit check or provide tax returns or paystubs. He simply requested a loan in writing and he could receive the money in 1-2 days. Sooner if he went to insurance office in person, that way same day service was possible. The farmer used the cash value portion of his whole life policy as a financial instrument to finance his needs for purchases not unlike the way the modern individual uses financing from a bank to finance his purchases of things he needs every day. The farmer used this financing tool called cash value to finance the purchase of seeds and other essential equipment on a yearly basis while running his business, which was his farm. And this financial toll was an essential part of his financial ecosystem.
The whole life insurance policy allowed him to function to various degrees as an individual financier, independently of the banking system because he provided his own financing for his daily needs. Then when the farmer died he left to his wife and children the knowledge of this financial system which allowed him to function as an individual independently of the banking system because he provided his own financing for his needs and he left to them a death benefit which allow them to purchase the farm and pay off his debts when he died. Thus he created a personal debt facility with the loans collateralized by the cash value portion of the policy, which was essentially a personal bank. It is an independent financial system which basically financed his life and business and at the end of his life he made sure that his children were better off then he was financially by eliminating their main debt “the mortgage on the farm”, which was paid off by the death benefit of his whole life insurance policy.
These ideas and concepts were well known in America, but appear to have been lost in our transition from a largely farm based economy to a largely industrial one. Ironically, the only part of this knowledge, which remained widely distributed in our culture was the association of dying with the phrase “bought the farm”. But it is totally stripped of its financial ramification and financial achievement. The current understanding of the phrase is simply that someone died.
Part Three: Tips for selecting your Whole Life insurance company.
My research into using using whole life insurance both as insurance, savings and an asset, has shown me four things to look for when selecting a company to buy your policy with a focus on growing your cash value. I will share those things with you now.
Mutual Insurance Company, because they pay dividends. Pick a company that practices direct or non-direct recognition of loans, and how it affects payment of dividend.
Loan fees. Know what the insurance company loan fees are and are they fixed or adjustable rates during the life of the loan. Learn this before working with a company. Company rating A or better by A.M. Best. Further Explanation of these four areas.
Mutual insurance companies are owned by the policy holders. A mutual insurance company, considers the policy holders to be the company owners. Therefore the company profits at year end go to the policy holders, as a “dividend”. It’s important to understand where this “dividend” actually is from. The insurance company collects premiums from policy holders and uses this money to pay all its claims and business expenses. Whatever is left over from the premiums paid each Calender year is called a profit and is paid to policy holders as a dividend. But technically it is “excess premium”, so the US Tax code refers to these payments as a “return of premium”, Therefore because it is considered a refund of your premium instead of income it’s not taxed. This dividend can be applied to your premium or to the cash value of your policy. The majority of these companies pay this dividend every year. Ten of them have paid dividends every year for 100 years. That means during every financial crisis of the last century these mutual companies have paid a dividend. Recognition of loans. Mutual insurance companies are either ”direct recognition” or ”non-recognition” with regards to the effect of the loans on your dividend. The companies which recognize loans may reduce your dividend if you have policy loans. Those companies considered non-recognition don’t reduce your dividend if you take out a policy loan. In general, non-recognition companies, which don’t reduce your dividend if you have a policy loan are the most desirable. But loan interest rate is more important, so this isn’t a deal breaker because the difference in the dividend is small, if the company offers lowest loan interest rates. The mutual insurance companies have differing interest rates they charge for policy loans. It is of course desirable to chose mutual insurance companies with the lowest interest rates. The second, very important part of this is fixed or variable loan interest rate. If the interest rate is fixed you know you expense and your profit using interest rate arbitrage. (Arbitrage means you borrow money at 5% and use it to earn at a higher interest rate.). If the interest rate is variable, if the federal bank increases its rate, you loan interest rate increases and your profitable investment could become a losing or unprofitable investment.
Company rating.
A.M. Best is an insurance rating agency focused on the worldwide insurance industry. Founded in New York City in 1899 by Alfred M. Best, the privately held company is headquartered in Oldwick, New Jersey. Both the U.S. Securities and Exchange Commission and the National Association of Insurance Commissioners have designated the company a nationally recognized statistical rating organization. Best issues both financial strength and issuer credit ratings. The former indicates the company's assessment of an insurer's ability to meet its obligations to policyholders. It takes into account both qualitative and quantitative assessments of the balance sheet, operating performance and business profile. Best has six secure ratings, ranging from the highest A++ to B+, and 10 vulnerable ratings, ranging from B to S, with the lowest indicating a rating was suspended. A.M. Best is the only ratings agency that specializes solely in the insurance industry. Best's short-term credit ratings reflect the company's ability to pay commitments due in less than a year, and they range from a high of AMB1+ to a low of D (in default). Long-term credit ratings reflect the company's ability to pay its commitments maturing in more than a year, and range from AAA (exceptional) to D (in default).
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Commentary
I am not an insurance agent and you will pay an insurance agent to help you buy your policy. I strongly recommend you read the material at the R. Nelson Nash Foundation site about insurance agents specifically trained in this specific special use of Whole Life Insurance. My research shows that traditional Whole Life Insurance Policies take 5 or more years to accumulate the amount of cash value the policies designed by the agents trained by the Nash Foundation due in one year. It cannot be emphasized enough that these policies are greatly modified versions of the commonly offered Whole Life Insurance policies and those modifications all benefit the policy owner. This information should help you pick a company based on your longterm goals. Please read Part Four for more information on choosing your insurance agent.
Part Four: Tips for selecting your whole life policy insurance agent.
Whole Life Insurance has been sold in this country for over 150 years. You will have no trouble finding an insurance agent to sell you a policy. In fact, your current insurance agent can probably sell you a policy. However I strongly advise against such a purchase until research your agents training. Unless the agent is specifically trained to provide Whole Life Insurance specifically modified to provide maximal cash accumulation you will be very disappointed in the amount of your premium dollars going towards insurance versus the amount going to cash value accumulation.
Traditional Whole Life policies provide very little life insurance compared to the amount of premium paid and large amounts of the first five years premiums are paid to the agent and the insurance companies. Most consumer finance gurus are very critical of Whole Life Insurance for that reason, and recommend term life insurance as giving you the most Insurance death benefit per dollar spent. This is exactly why you only want to deal with an agent with specific training, like that provided by the Nash Foundation. Through a combination of policy riders, including elements of term insurance, flexible premiums and other policy modifications, both the amount of premium dollars which go to cash value in the first years of the policy and the death benefit for the same premium paid as traditional Whole life policies is greatly increased.
I am not an insurance agent and you will pay an insurance agent to help you buy your policy. I strongly recommend you read the material at the R. Nelson Nash Foundation site about insurance agents specifically trained in this specific special use of Whole Life Insurance. My research shows that traditional Whole Life Insurance Policies take 5 or more years to accumulate the amount of cash value the policies designed by the agents trained by the Nash Foundation due in one year. It cannot be emphasized enough that these policies are greatly modified versions of the commonly offered Whole Life Insurance policies and those modifications all benefit the policy owner.
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Title: Utilizing Whole Life Insurance to create a personal mini-bank.
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