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  #1  
Old 02-13-2010, 01:39 PM
JimmyDaGeek JimmyDaGeek is offline
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Bank on Yourself?

I just finished reading a book "Bank on Yourself" by Pamela G. Yellen. The premise is that you can create wealth by buying whole-life insurance and overfund-ing the policy to create a cash value. This cash value is then used as a "bank" that you borrow from and pay back, allowing you to further overfund the policy.

The policy has certain specifications:
  • Written by well-established mutual (not stock) insurance companies with long records of dividend paying.
  • Non-direct recognition companies which will credit your policy with interest and dividends even if you have an outstanding loan.
  • Paid-up additions rider that lets you add to the death benefit and further increase your cash value.
  • Payment flexibility

There is a website (of course!): http://www.bankonyourself.com/ that describes some of it.

Other web addresses are given in the book. I was wondering what the peanut gallery thinks about this. Please read the book before you comment. The book does emphasize this is not a get-rich-quick scheme. It's designed to build a reliable financial nest egg that can be used for retirement income, assuming tax laws don't change.

I have seen this concept of overfund-ing policies before, subject to IRS rules that prevent them from becoming MECs. I have never heard of this specific approach before. The book seems to be written for people that are constantly borrowing and paying back loans, especially for cars, but it claims the more frugal of us will find value, as well.


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  #2  
Old 02-13-2010, 10:00 PM
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mumbles mumbles is offline
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Re: Bank on Yourself?

uh, no, thanx, i won't read the book. i don't buy insurance because i have no heirs.

overfund. that means you pay more than you have to. you got less money.

borrow the cash, from yourself. you pay interest to borrow your own money. great idea.

pay it back. you got less money.

maybe it works by saving you taxes. poor people don't have to pay any taxes at all.



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  #3  
Old 02-14-2010, 05:48 AM
ihatescams61 ihatescams61 is offline
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Re: Bank on Yourself?

I am not in any way trying to be sarcastic. Just wanted to mention that first. Since you read this book, can you give an example of how much each year you would need to pay each year into the premiums of these policies?

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  #4  
Old 02-14-2010, 06:07 AM
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Soapboxmom Soapboxmom is offline
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Re: Bank on Yourself?

http://www.planyourbank.com/
Quote:



















  • SUBSCRIBE TO MONEY

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    1. All policies fall into one of two camps.
    There are term policies, or pure insurance coverage. And there are the many variants of whole life, which combine an investment product with pure term insurance and build cash value.
    2. Insurance is sold, not bought.
    Agents sell the vast majority of life policies written in the U.S. because the life insurance industry has a vested interest in pushing high-commission (and high-profit) whole-life policies.
    3. Whole life is expensive.
    Policies with an investment component cost many times more than term policies. As a result, many people who buy whole life often can't afford an adequate face value, leaving themselves underinsured.
    4. Whole-life policies are built on assumptions.
    The returns quoted by the agent are simply guesses - not reality. And some companies keep these guesses of future returns on the high side to attract more buyers.
    5. Keep your investing and insurance strictly separate.
    There are better places to invest - and without the high commissions of whole-life policies.
    6. Buy enough term coverage to fill your needs.
    Life insurance is no place to skimp, especially with rates at historic lows.
    7. Match the term of the policy to your needs.
    You want the policy to last as long as it takes for your dependents to leave the nest - or for your retirement income to kick in.
    8. Buy when you're healthy.
    Older people and those not in the best of health pay steeply higher rates for life insurance - so buy as early as you can, but don't buy until you have dependents.
    9. Tell the truth.
    There's no sense in shading the facts on your application to get a lower rate. Be assured that if a large claim is made, the insurance company will investigate before paying.
    10. Use the Web to shop.
    Buying life insurance has never been easier, thanks to the Internet. You can get tons of quotes - and avoid the pushy salespeople.





    Other scammers that are discussed on here have gotten in to that nonsense. The policies make easy 5 and 10 grand or much higher commission for the insurance agent. The policy though has tons of fees and hidden costs and is one of the worst investments one can make. The rate of return is so much lower than other types of investments. The ultra wealthy wanting to pass on money tax free would beneift, but we little people should consider 401ks, IRAs, college savings plans and sensible plans to get out of debt. Also if one can't keep up the premiums they could lose the policy. One also can't borrow from it until years in when the cash value will be high enough to allow that. So, advice from a Certified Financial Planner or expert who is not smelling thousands in commission should be consulted about your personal situation!

    Soapboxmom

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      #5  
    Old 02-14-2010, 07:59 AM
    JimmyDaGeek JimmyDaGeek is offline
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    Re: Bank on Yourself?

    Quote:
    Originally Posted by JimmyDaGeek View Post
    Please read the book before you comment.
    Thank you all for giving me your uninformed opinions. I can google about whole-life insurance, too. Supposedly, this is not your typical whole-life policy.

    The book describes the concept, and, of course, presents all sorts of first-person interviews to fill up the book and get you excited. The author does not sell insurance but makes her money by selling the book and training insurance people about the concept. Supposedly, the commission is reduced by 50% or so because of the type policy it is. I have no idea what the policy costs or projections are because the book does not talk about that as it encourages the reader to get an analysis done. Yes, I know what that means. I sold financial products for a short while.

    I am hoping that someone out there has seen a presentation and can talk facts, not rehash generalized opinions about whole-life policies that the INSURANCE forum is spouting. Overfund-ing of whole-life insurance is a standard practice, but this is supposed to be better. You don't need an heir for this type of insurance, because the policy is used as a wrapper and has a minimal death benefit. You can always send your money to a charity.

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      #6  
    Old 02-14-2010, 08:41 AM
    Soapboxmom's Avatar
    Soapboxmom Soapboxmom is offline
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    Re: Bank on Yourself?

    Quote:
    Originally Posted by JimmyDaGeek View Post
    Thank you all for giving me your uninformed opinions. I can google about whole-life insurance, too. Supposedly, this is not your typical whole-life policy.

    The book describes the concept, and, of course, presents all sorts of first-person interviews to fill up the book and get you excited. The author does not sell insurance but makes her money by selling the book and training insurance people about the concept. Supposedly, the commission is reduced by 50% or so because of the type policy it is. I have no idea what the policy costs or projections are because the book does not talk about that as it encourages the reader to get an analysis done. Yes, I know what that means. I sold financial products for a short while.

    I am hoping that someone out there has seen a presentation and can talk facts, not rehash generalized opinions about whole-life policies that the INSURANCE forum is spouting. Overfund-ing of whole-life insurance is a standard practice, but this is supposed to be better. You don't need an heir for this type of insurance, because the policy is used as a wrapper and has a minimal death benefit. You can always send your money to a charity.
    I have studied exactly what you refer to extensively. It's the Be Your Own Banker / Personal Banker etc. deal. You get a pitch about borrowing from and paying interest to yourself using the whole life policy. Whole life is a terrible investment for growth. There are many more options for investing that have much higher returns historically and offer significant tax advantages. Most folks need more retirement money such as one would have in a 401k or IRA. And, except for a home, most should not be borrowing money except in the case of a catastrophic illness.

    This insurance policy principal being used as a personal bank sounds very romantic, but few people can really fund it properly. It takes years to have enough in it to access it for loans to oneself and in fact many need higher face value insurance than it provides. For many a good term policy, more sensible retirment savings and paying off debt is what the plan should be. I blogged about it more here.

    Soapboxmom

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      #7  
    Old 02-16-2010, 12:29 PM
    bdunklau bdunklau is offline
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    Re: Bank on Yourself?

    I have one of these policies - been in it almost 5 years now.

    I bought it not knowing anything more than what was in the marketing literature.

    I almost cancelled it 3 years ago after someone close to me told me I was being scammed.

    Rather than make another hasty decision, I started this thread on Kiplingers Insurance forum instead.

    http://forums.kiplinger.com/showthread.php?t=10496

    Over the course of the past 2 years, some really knowledgeable people have weighed in. And this thread has become the most viewed and the most discussed topic in the whole insurance forum!

    Guess what? Not a scam at all.

    You do need sufficient income to fund one of these things. You do need patience because it takes time to get out of the "red". And you do need persistence - it's a new way of life.

    This plan should not replace retirement accounts. It's not an investment. It's a savings account.

    Everyone has a savings account, it's just that when you die, your heirs only get what's in the account.

    When you have one of these policies, your heirs get 10x what's in the account (the death benefit).

    Everyone out there that says this is a scam... bring it on! I will smash your argument to pieces

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      #8  
    Old 02-16-2010, 12:35 PM
    bdunklau bdunklau is offline
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    Re: Bank on Yourself?

    Quote:
    Originally Posted by Soapboxmom View Post
    I have studied exactly what you refer to extensively. It's the Be Your Own Banker / Personal Banker etc. deal. You get a pitch about borrowing from and paying interest to yourself using the whole life policy. Whole life is a terrible investment for growth. There are many more options for investing that have much higher returns historically and offer significant tax advantages. Most folks need more retirement money such as one would have in a 401k or IRA. And, except for a home, most should not be borrowing money except in the case of a catastrophic illness.

    This insurance policy principal being used as a personal bank sounds very romantic, but few people can really fund it properly. It takes years to have enough in it to access it for loans to oneself and in fact many need higher face value insurance than it provides. For many a good term policy, more sensible retirment savings and paying off debt is what the plan should be. I blogged about it more here.

    Soapboxmom
    You state in your blog post more than once that "it will be 10-20 years for any significant cash value to build".

    Mine had $10,000 after the first year. $16,000 after the 2nd. $26,000 after the 3rd. And $38,000 after the 4th.

    I would call that significant.

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      #9  
    Old 02-16-2010, 12:39 PM
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    BorisZ BorisZ is offline
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    Re: Bank on Yourself?

    Quote:
    When you have one of these policies, your heirs get 10x what's in the account (the death benefit).
    Yep, that why Wholelife insurance is for. Unexpected illness and death. Just do not expect get rich.

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      #10  
    Old 02-16-2010, 12:42 PM
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    mumbles mumbles is offline
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    Re: Bank on Yourself?

    i am convinced. send me your money and i'll let you borrow it back at 5% a year, after it builds some cash value, year or two. with the profit, i'll buy a term insurance policy on you.

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      #11  
    Old 02-16-2010, 12:45 PM
    bdunklau bdunklau is offline
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    Re: Bank on Yourself?

    Quote:
    Originally Posted by Soapboxmom View Post
    I have studied exactly what you refer to extensively. It's the Be Your Own Banker / Personal Banker etc. deal. You get a pitch about borrowing from and paying interest to yourself using the whole life policy. Whole life is a terrible investment for growth. There are many more options for investing that have much higher returns historically and offer significant tax advantages. Most folks need more retirement money such as one would have in a 401k or IRA. And, except for a home, most should not be borrowing money except in the case of a catastrophic illness.

    This insurance policy principal being used as a personal bank sounds very romantic, but few people can really fund it properly. It takes years to have enough in it to access it for loans to oneself and in fact many need higher face value insurance than it provides. For many a good term policy, more sensible retirment savings and paying off debt is what the plan should be. I blogged about it more here.

    Soapboxmom
    Me again :)

    Your blog post also states that whole life is a horrible investment.

    You're absolutely right.

    But isn't there a difference between savings and investments?

    Don't you have a retirement account somewhere and also a savings account somewhere. That savings account is a horrible investment isn't it?

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      #12  
    Old 02-16-2010, 12:46 PM
    bdunklau bdunklau is offline
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    Re: Bank on Yourself?

    Quote:
    Originally Posted by BorisZ View Post
    Yep, that why Wholelife insurance is for. Unexpected illness and death. Just do not expect get rich.
    I'm not counting on this plan to make me rich.

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      #13  
    Old 02-16-2010, 12:51 PM
    bdunklau bdunklau is offline
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    Re: Bank on Yourself?

    Quote:
    Originally Posted by mumbles View Post
    i am convinced. send me your money and i'll let you borrow it back at 5% a year, after it builds some cash value, year or two. with the profit, i'll buy a term insurance policy on you.
    Would you like to add anything constructive to the discussion - or just inane comments?

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      #14  
    Old 02-16-2010, 01:02 PM
    bdunklau bdunklau is offline
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    Re: Bank on Yourself?

    Quote:
    Originally Posted by Soapboxmom View Post
    For many a good term policy, more sensible retirment savings and paying off debt is what the plan should be.
    Soapboxmom
    Sure.

    But there are also many people that do have money and that are disciplined enough to save. These are the people that save $30,000 and then go write a check for a car (because if you can afford to, that's the right way to do it).

    But while they're saving, they're earning puny interest and then that gets taxed. And if they get hit by a bus on their way to withdraw their money, all their heirs get is what's in the account.

    Show somebody that has an extra $500 or $1000/month this strategy and they'll be on it like white on rice.

    Trust me.

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      #15  
    Old 02-16-2010, 01:17 PM
    bdunklau bdunklau is offline
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    Re: Bank on Yourself?

    The "recapture" nonsense in the marketing literature is just that - nonsense.

    Makes it sound like you're getting all those cars for free.

    Instead, consider you have a plain ol' piggy bank at home.

    Every month for 5 years, you put $1000 into Piggy Bank. When 5 years is up, you "borrow" $40,000 from Piggy Bank to go buy a car.

    Create a 4 year payment plan (because you know you'll want another car in 4 years) and start making payments to Piggy Bank instead of Chase/BofA/etc. When 4 years is up, your payments on your existing car are through and you now have enough money in your Piggy Bank account to go buy another car.

    Lather, rinse, repeat.

    That's exactly what a bank on yourself policy is doing, except...

    The BOY policy is growing tax free and it pays your heirs a lot more than what's in the account when (not if) you die.

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      #16  
    Old 02-16-2010, 01:33 PM
    bdunklau bdunklau is offline
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    Re: Bank on Yourself?

    Quote:
    Originally Posted by Soapboxmom View Post
    I have studied exactly what you refer to extensively. It's the Be Your Own Banker / Personal Banker etc. deal. You get a pitch about borrowing from and paying interest to yourself using the whole life policy. Whole life is a terrible investment for growth. There are many more options for investing that have much higher returns historically and offer significant tax advantages. Most folks need more retirement money such as one would have in a 401k or IRA. And, except for a home, most should not be borrowing money except in the case of a catastrophic illness.

    This insurance policy principal being used as a personal bank sounds very romantic, but few people can really fund it properly. It takes years to have enough in it to access it for loans to oneself and in fact many need higher face value insurance than it provides. For many a good term policy, more sensible retirment savings and paying off debt is what the plan should be. I blogged about it more here.

    Soapboxmom
    But you are correct when you state...

    that it's not a good idea to use home equity to fund one of these things.

    And that if you bite off more premium than you can chew, you may have to cancel the policy out of necessity.

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      #17  
    Old 02-16-2010, 01:48 PM
    bdunklau bdunklau is offline
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    Re: Bank on Yourself?

    Quote:
    Originally Posted by JimmyDaGeek View Post
    The book seems to be written for people that are constantly borrowing and paying back loans, especially for cars, but it claims the more frugal of us will find value, as well.
    I would say this strategy is even more appealing to people that like to save up and pay cash - because that's essentially what you're doing.

    You're just getting the added benefit of tax free growth and a death benefit.

    The car example they use is meaningful because just about everybody needs a car. And most people finance. Hardly anybody pays cash.

    If you instead, borrowed against your cash value, and treated that loan like you would a traditional loan (by making payments), you would have enough for another car by the time you paid off the first loan.

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      #18  
    Old 02-16-2010, 02:01 PM
    bdunklau bdunklau is offline
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    Re: Bank on Yourself?

    Some people have no need of a death benefit. In that case, what's so great about this plan?

    The answer: Tax-free growth of 4%-5% over your life.

    Big woop, you say?

    Go find a savings account that will net you that after tax - doesn't exist.

    "Well, I won't save it - I'll invest it!" you say.

    Look, you gotta save money somewhere. You can't invest every last penny.

    Any financial planner will tell you you need a rainy day fund, one that isn't subject to the ups and downs of the market. A good rainy day fund should have 3-6 months of living expenses in it.

    You can't invest this money, you have to put it in a bona fide savings account so that you know it will be there if you need it.

    So given the fact that you know you have to have savings somewhere, your options are savings accounts, CD's,money market mutual funds,... all the stuff everybody knows about, or....

    one of these policies.

    CD's, savings accounts, and money markets won't earn you 4-5% after taxes.

    And if you do have heirs, they won't pay a death benefit.


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