In our last post on Why Whole Life Insurance Is a Bad Investment we talked about diversification. In today’s are article we will discuss:
Reason #2: Whole life returns are not guaranteed.
People for some reason continue to compare stock market returns and returns in Whole Life Insurance when they are not even in the same category. Whole Life Insurance should be compared to conservative savings like Bank Savings, Certificates of Deposit (CDs), Money Market Accounts, US Government Bonds, etc. When doing this type of comparison you will note that Whole Life Insurance Contracts do have a guaranteed rate of return. When you look at an illustration the left hand side clears states guaranteed. Dividends are not guaranteed and are a result of the profits of the company minus expenses. In a mutual whole life company, what is guaranteed is that profits must be distributed to policy holders. Once a dividend is credited it can never be taken away is also guaranteed.
Again, Whole Life Insurance is not an investment but a place to store money for future use that does provide a guaranteed rate of return plus a death benefit as well as a host of other attributes. Your money grows tax deferred, you are paying premiums with after tax dollars, the money grows and if utilized correctly can be taken tax free. Secondly utilizing certain riders, a whole life policy can provide other living benefits like Disability Protection, long term care, Cash Value Protected from Creditors, Ability to borrow against your cash value for purchases and other investments.
A properly designed whole life insurance contract that follows the guidelines of the Infinite Banking Concept as outlined in the book “Becoming Your Own Banker” is considered one of the best ways to build Long Term wealth over ones life and for multiple generations. Many financial entertainers that have no fiduciary write articles on websites and blogs continue to bash this concept without ever properly understanding how money works or understanding how much tax and one pays over their lifetime.
The Infinite Banking Concept works without even using a whole life insurance contact. One could become their own banker by using HELOCs, Bank CDs for collateral, or margin loans from a brokerage account. The key when thinking about using a whole life insurance contract for Infinite Banking purposes is the guarantees, the history of safety and security of your wealth and the ease of access to your money when needed.
Learn more about the Infinite Banking Concept purchase the book Becoming Your Own Banker.
Build it up, roll it over
The Infinite Banking Concept (IBC) involves creating a storage system for your money that is guaranteed to grow and gets better every single year. It does this through design. While you can practice IBC with a shoe box (the idea of borrowing money and paying it back with interest, also known as Economic Value Added (EVA)), we have found that setting up a Specially Designed Life Insurance Contract as a savings vehicle is currently the best system. This beats out using other forms of credit like Bank Loans, HELOC’s, 401k loans, and personal loans.
Specially Designed Life Insurance Contract (SDLIC) has been around for over 150 years. It predates the tax code and has been a safe place that people used prior to the advent of the qualified plans and easy stock market entry for the average person.
What this does is creates a financial tailwind with your debt paydown. Each dollar is growing tax deferred, even if you have borrowed against it. As you build up your cash inside the SDLIC you then use the collateralized loan feature to pay down the debt that is outside your control. By moving the debt to your control you have many options.
- You can defer the payments as long as you wish
- You can pay just the interest each year. (Interest in this account is simple interest calculated yearly on the outstanding borrowed amount)
- You can set up a payment plan of your choosing for as short or as long as you wish
The idea is to concentrate on getting 100% of your outstanding loan balance rolled to your SDLIC and into your control. Then you can concentrate on paying down that loan. We recommend charging yourself at least the interest that you would have paid to the outside creditor. Each payment you make to your policy loan is available to be used again and again. This allows you to recycle your money over and over.
Isn’t the debt snowball the best method to pay off debt? No, because you are giving up control of your money and your money does not earn uninterrupted compound interest! Secondly, you lose protection. By using SDLIC you get access and control of your money plus protection in case something would happen to you. What if you just pay off your debt directly to the debtor, then you get hit by a bus? At least you were debt free right? But that money is gone forever. What if, in this same scenario, with the same dollars, you pay off your debt, and your loved ones receive several hundred thousand tax free dollars regardless of whether your debt is paid or not. Now that’s control!
Another idea is, what if you concentrated on paying off your loans and still owe money but lose your job? This happened to many people during the great recession in which case they had to default on loans because they didn’t have the cash reserves to weather the storm. Again, if your debt is rolled over to your control and you lose your job, you can decide to reduce your payback or stop paying all together until your job situation is fixed. Maximum control and Maximum efficiency.
Use our contact form to schedule a 30 minute strategy session to learn how the Infinite Banking Strategy and the Roll Over Roll Down Debt system can work for you to give you and your family Financial Peace of Mind, Financial Protection and create a Financial Tailwind. dynastywealthpartners.com/contact/
