START CONTROLLING THE BANKING FUNCTION IN 7 STEPS

• STEP 1, UNDERSTAND THE DIFFERENCE BETWEEN TERM AND WHOLE LIFE INSURANCE:
Term life insurance (temporary) vs dividend-paying whole life insurance (permanent)

The difference between term life insurance and dividend-paying whole life insurance can be compared to the difference between renting a home and purchasing a home while also building equity. Just as renting a home for a specified period, term life insurance provides coverage for a specific period (e.g., 10, 20, or 30 years). If you pass away during this term, the policy pays out the death benefit to your beneficiaries. If you outlive the term, the coverage ends. It is typically more affordable than whole life insurance, much like renting a home often costs less upfront than buying one. Just as renters do not build equity in the property they live in, term life insurance does not accumulate any of what’s called cash value (equity). Once the term is over, you walk away with no accumulation of money to show for the premiums you’ve paid.

Whole life insurance provides coverage for your entire life, as long as premiums are paid. It guarantees a death benefit no matter when you pass away. Imagine that purchasing the death benefit of a cash value whole life insurance policy, although intangible, is like purchasing a house. Just as you would build equity making payments for your house, you build cash value making payments for the death benefit of your whole life insurance policy. The premiums are higher in the early years when your risk of dying is lower, compared to term insurance, similar to how buying a home involves higher upfront costs. But as you get older, your premiums remain the same even as your risk of dying increases. The portion of your premiums going toward building cash value or, equity, grows tax-free. Your cash value can be accessed tax-free during your lifetime via loans against it.

• STEP 2, UNDERSTAND HOW MOST PEOPLE VIEW AND USE A WHOLE LIFE INSURANCE POLICY:
Whenever most people purchase a whole life insurance policy, they purchase it solely for death benefit coverage. They want to pay the least amount in premiums while receiving the most death benefit possible. They purchase the policy with no intention of using it as a means to accumulate as much money as possible in a tax-free way, so the life insurance agent from whom they purchase it designs it to minimize the cash value and maximize the death benefit. Although they do accumulate some cash value over their lifetime, it’s minimal compared to a policy designed solely for accumulating cash value as much as is legally possible while proportionately minimizing the death benefit.

• STEP 3, UNDERSTAND HOW ADVANCED FINANCIAL STRATEGISTS VIEW AND USE A WHOLE LIFE INSURANCE POLICY:
Advanced financial strategists purchase a whole life insurance policy solely for tax-free cash value accumulation. They want to pay as much as they can in premiums to maximize their cash value while receiving a proportionately lower death benefit. They purchase the policy with the primary intention of using it as a means to accumulate as much money as possible in a tax-free way, so the life insurance agent from whom they purchase it designs it to maximize the cash value accumulation and minimize the death benefit. They use their policy as a place to store their money instead of a traditional bank savings account. Therefore, they view their premiums as “deposits” since they will have access to use all the money paid in premiums. The cash value grows at a guaranteed, tax-free rate of 3%-6%, receiving dividends from the insurance company’s profits. The companies providing these policies are mutually owned by their policyholders and several of them have paid dividends to their policyholders consistently every year for over 100 years.

• STEP 4, UNDERSTAND THE POLICY EXAMPLES BELOW WHICH ARE DESIGNED FOR GUARANTEED, TAX-FREE MONEY ACCUMULATION:

The banking policies above show how much premium is paid (deposited) annually and how much cash value/savings are available to borrow against at any time (death benefit not shown for emphasis on the main purpose of the policy). You can build your banking policy with as little or as much money as you want. The policy shown on the left was built with $400/month for 7 years, the middle policy with just under $3000/month for 7 years, and the policy on the right with just over $4000/month for seven years. After year 7, the policy is paid in full or, the monetary "bank" is built in full, and will continue to grow 3%-6% tax-free for life, guaranteed. Policies are also commonly structured for 10 years, providing a larger capital base for growth.

These whole life insurance policies are designed to maximize early cash value growth and leverage the compounding power of dividends. Over seven years, the policyholder pays (deposits) annual premiums. During this period, a portion of the premiums is used by the insurance company to cover the cost of insuring the policyholder’s life and fund guaranteed cash value growth. Any surplus from conservative underwriting and investment returns is returned to the policyholder in the form of dividends. These dividends are not considered taxable income because they are classified as a return of unneeded premium. They are a refund of overpaid premiums. (money the insurance company didn’t end up needing for your death benefit payout because you didn’t die)

Instead of taking dividends as cash and spending the money elsewhere, the policyholder reinvests them to purchase Paid-Up Additions (PUAs), which are small bits of additional death benefit coverage that come with their own cash value and generate additional dividends, creating a compounding effect. Over time, the accumulation of PUAs significantly increases the policy’s cash value and death benefit. By year 7, the policy becomes self-sustaining, meaning the cash value and dividends generated within the policy are sufficient to cover all future premiums. As a result, the policyholder no longer needs to pay premiums out of pocket, yet the cash value continues to grow year after year.

• STEP 5, UNDERSTAND HOW POLICY LOANS AGAINST CASH VALUE WORK:
One of the ways a life insurance company offering dividend-paying whole life insurance policies invests its funds is through policy loans to policyholders. Instead of buying bonds, for example, the company will loan you money and charge you an interest rate similar to the interest rate it would have otherwise earned from buying a bond and earning interest that way. To the insurance company, a policy loan to a policyholder is an asset. Therefore, your whole life policy contractually guarantees you the ability to take out loans at predetermined interest rates, so no credit check is necessary. You won’t be asked the reason for the loan, for your income, or even when or if you will repay your loan because the cash value of your policy is the collateral for it, which the insurance company itself is guaranteeing. The insurance company doesn’t care if you don’t repay your loan. If you don’t repay it, the life insurance company will simply deduct your outstanding loan balance from your death benefit prior to indemnifying your beneficiaries. (Policy loans are not taxable income)

The insurance company uses your cash value, which it itself is guaranteeing, as collateral for the loan and charges you a low, predetermined interest rate such as 4%-5% (usually prime rate plus 1%-2%) because they aren't incurring any risk. Your cash value continues to grow uninterrupted at 3%-6%, even when you have an outstanding loan, because it is just a representation of the amount the insurance company guarantees to pay the policyholder, payable from the company's general account, the same account from which the money is lent. Although you are borrowing from the insurance company and not “from yourself” or “from your policy,” as a policyholder you are part owner of the mutually owned company and its financial assets. Your loan interest repayments are benefitting the cash value of other policyholders of the company while they have outstanding loans, just as their repayments are benefitting the cash value of your own policy while you have an outstanding loan. By the time you repay your loan, your cash value will have grown substantially, enabling you to borrow increasingly larger amounts at the end of every repayment schedule, the time period of which you determine.

• STEP 6, UNDERSTAND HOW TO USE A DIVIDEND-PAYING WHOLE LIFE INSURANCE POLICY TO CONTROL THE BANKING FUNCTION:
A bank is a financial intermediary because banking is about managing cash flow—money coming in and going out. Banks profit by earning more interest from borrowers than they pay to depositors. When you control the banking function, you act as your own financial intermediary, controlling the flow of money in and out. Although the insurance company provides the loan, think of it as depositing funds into your control. Just as you expect interest when you deposit money into a bank, the insurance company earns interest from the loans it provides to you.

To control the banking function, choose to repay your loan at a higher interest rate than the insurance company attaches to your loan. Suppose your loan (the money deposited into your control from the insurance company) has a 4% interest rate. Choose a higher interest rate such as 6%, mimicking a scenario where you took out a loan from your conventional bank which took on risk by lending you money. The extra interest purchases small bits of additional death benefit coverage (PUAs), which further compounds your cash value accumulation. You are controlling the banking function by retaining and reinvesting the 2% of interest you would have otherwise paid to a bank. The difference between the lower, required interest rate the depositor (the insurance company) attaches to the loan and the higher interest rate you charge yourself as a borrower represents your earned profit. This process mirrors the cash flow structure of conventional banking but redirects the flow of money for you to retain full control and financial benefit.

Suppose instead of the insurance company lending you money or, “depositing it into your control,” you deposit money into a bank savings account and therefore into the bank's control (you’re lending the bank money). Then you borrow the same amount of money at 6% interest. If the loan is a simple interest loan, you would pay a fixed interest amount (e.g., $600 per year) on the original loan balance for the entire loan term. The banker pays you 4% interest on your savings account while you are paying him 6% interest on your loan. The bank earns 2% interest, you lose 2% interest, and you owe income tax on the growth of the money in your savings account. For an amortized loan, most of the interest is paid initially, and as a result, less interest is paid over time as the principal decreases. This structure benefits the bank more than the borrower because the bank receives a larger portion of the interest early in the loan, securing more profit upfront. The borrower pays more interest in the beginning, slowing their equity buildup.

• STEP 7, CONTACT A LIFE INSURANCE AGENT WHO UNDERSTANDS HOW TO DESIGN DIVIDEND-PAYING WHOLE LIFE INSURANCE POLICIES FOR BANKING PURPOSES WITH THE RIGHT COMPANY AND BEGIN BUILDING YOUR BANKING POLICY:
There are over 700 life insurance companies in the United States. About 10 are ideal for Whole Life Banking and very few agents are familiar with these policy designs. The company must be mutually owned by its policyholders (not a stock company) and meet various other criteria such as flexibility and overall suitability.

Call (785) 802.8764 or fill out our contact page.