August 8, 2012 at 1:52 pm #17615
I read Bill’s essay today about wealth protection ideas of the old money rich and wanted to share another idea with members. Though I am not by any means old money I have started saving and capitalizing my own bank which I intend to use for most of my basic financing needs over the next few decades (autos, college education, weddings, vacations, etc). The brilliance of this plan is that it allows me to capture all the finance charges myself instead of giving them to a financial institution. Put another way, I have no lost opportunity cost of my money. This vehicle is tax advantaged and essentially will function like an unlimited Roth account when I choose to retire (no age or withdrawal limits).
What am I talking about? It’s a plain vanilla whole life policy structured not for maximum death benefit but rather for max cash accumulation without violating IRS rules. The irony is over time your death benefit will grow immensely as you “use” your bank. The accumulated cash value is fully liquid and loans from this policy are not taxable events. Neither is the death benefit which can be passed to the next generation and funneled into their own banking policies. Currently the policies guarantee 4% plus dividends which likely will grow in the future as interest rates rise. This is a Savings vehicle where your capitol is secure and not an investment where principle is at risk. Over time one can effectively separate their family from the financial system and become independent.
What does it mean to use your bank? If this is structured correctly, you can put in about three time the premium each year. After a year or two you can then take out cash as a loan which the insurance company charges 6%. This is structured as a non-recourse policy so your policy is still earning the 4% plus dividends on the WHOLE amount as if the loan never existed. Your loan cost is only 2% but then you pay yourself back at 4% or more thereby increasing the compounding power of your bank. I’m a physician so I plan on running my quarterly tax payments through my bank capturing an additional 4% plus on my tax monies that used to just sit in a money market fund until quarterly tax day. I’ve spoken with people who have purchased cash flow real estate and even one person who purchased two MRI machines for a local hospital that are cash-flowing back into his policy.
I just wanted members to know that there are other options rather than the stock market if you want to safely grow your Capitol now in this uncertain environment.
Guess who the biggest purchasers of whole life insurance have been worlwide since 2008? The too-big-to-fail banks like Citigroup, Goldman, bank of America, etc. These institution use whole like as tier one Capitol on their balance sheets. Remember that mutual life insurance does not operate on a fractional- reserve basis like banks. They are not leveraged because they have to have the funds to pay off policy holders.
I started my research into this idea with a book by Nelson Nash called “Becoming your own Banker”. I also recommend “The Pirates of Manhattan” by Barry James Dyke and “How Privatized Banking Really Works” by L. Carlos Lara and Robert P. Murphy.
I interviewed three wealth management firms that use this technique as the core of portfolio management and liked Fortiphi Financial in Seattle the best. Feel free to pm me if you want to know more.
Stephen FraserAugust 20, 2012 at 3:23 am #17975
I have reviewed this same idea over the years and have never been sold on it. I know why the insurance guys sell it, but I am not buying, even though I hold a life insurance license, along with being an attorney and CFP. Copy the following link and put it in your browser for a look at the other side of this issue,
Things are never as simple as they seem. By the way, I do not mind being shown that i am wrong. I admit that my experience in the character of the people that have pushed this has colored my opinion.
Randy M. Long, JD CFP
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