Multimillionaires and their families are set up to be their own bank. They use their assets to loan and receive interest. They also use their assets to invest.
Borrowing Money From a Bank
Borrowing money from a bank or credit union is expensive and time-consuming. What if you borrowed from yourself? You don’t have to be a multimillionaire to do this. Set up a private family banking system by borrowing money from yourself.To do this, you use a whole life insurance policy to act as the family bank—your privately owned bank.
Purchase a Whole Life Insurance Policy
To Be Your Own Bank, you’ll need to purchase a mutual whole life insurance policy.But you need to understand how whole life insurance works. It is different from term life insurance. A whole life policy is in place for the duration of your life. It remains as long as you pay your premiums. With term life, the clock is ticking. It has a set number of years, like 15 or 30, when it is in effect.
A term life policy’s value always remains the same. But a whole life insurance policy accrues a cash value. That means the value of the whole life policy will grow over time. The caveat is that whole life insurance is more expensive than term life.
There are two types of companies from which to purchase a whole life policy: a mutual life insurance company and stock insurance company.
The most significant difference between the two is dividends. A mutual life insurance company is owned by the policyholders, and they share in the company profits; therefore, a mutual whole life policy pays dividends.
Properly Fund a Whole Life Policy
You will need to aggressively build cash value to take advantage of the Be Your Own Bank concept. That means funding the policy over a few years. In the short term, you will need to pay more than the monthly premium to adequately establish your private bank.Be Your Own Banker
You’ll be able to use your whole life policy as a bank once cash value has been built. You can use the value in the whole life policy to build wealth, invest in retirement, or make large purchases.Withdraw the cash surrender value to use the accumulated cash value. A better option is to borrow against your cash surrender value.
Cash surrender value is the money you receive when you cancel a whole life insurance policy minus any surrender fees. But by borrowing against it, you receive the funds, but aren’t canceling the policy.
Two Ways to Receive Funds From Whole Life Policy
There are two ways to take funds from a whole life insurance policy. You can make a withdrawal, which may have some tax implications. That’s because the dividends and interest earned from the policy are tax-deferred.The other way is to take out a loan. You don’t have to submit to a credit check or need a specific credit score to do this. Once more, you are borrowing money from yourself. You put in a request, and, usually, the funds are in your bank account within days.
Putting up personal assets or collateral is not needed, either. That’s because with mutual whole life insurance policies, your death benefit is your collateral.
Use Your Borrowed Funds to Make Money
You can use the funds as you see fit. An option to use the funds you borrow is to make large purchases or invest. By investing, you can earn additional funds.You can also use the borrowed money to loan to family members and have them pay you back with lower interest than they would receive at a financial institution. They receive a deal, and you receive profit.
The goal of Be Your Own Bank is to build wealth.
Another way to receive funds from your whole life policy is to pledge it against a cash value line of credit. This is great if you need additional funds and want to avoid borrowing directly from the policy. Again, talk to a financial advisor to assess the best scenario for your situation.
