The Surprising Truth About What Happens to the Cash Value of Your Life Insurance Policy When You Die

In Part 1 of this two-part series, I proved the media’s financial gurus are wrong when they claim that it takes years to build cash value in a whole life insurance policy.

In this second part of the series, I’ll show you why all the self-proclaimed experts miss the boat when they claim that whole life insurance policies are a rip-off because you build up all that cash value, then the insurance company keeps it when you die and only gives your heirs the death benefit.

It doesn’t have to be that way, my friend!

Click on the policy statement above to see a larger version

Here’s an actual whole life insurance policy annual statement. (This is a different policy than the one I showed you in Part 1.)

This is a whole life insurance policy purchased on my life in 1992. The statement I’m showing you, issued 17 years later, makes some astounding revelations.

First, note the date of this statement: January 31, 2009. What do you remember about the financial world around that time?

It was a time of crisis, with the bursting of the real estate bubble and crashing of all markets. Many folks’ dreams of a comfortable retirement were crushed! This global financial crisis is considered by many economists to have been the worst financial crisis since the Great Depression.

The one-year statement at the top of this page covered a year that was awful—one of the worst ever—for stock market and real estate investors. In fact, the S&P 500 was down 40% during that period.

What Happens to Bank On Yourself-Type Whole Life Insurance Policies When the Stock Market Is Plunging?

How do Bank On Yourself-type life insurance policies fare during down markets? Take a look for yourself.

Even with all the turbulence in the financial world, nobody who owned a whole life insurance policy saw their policy take a hit. For example, none of my whole life insurance policies, including this one, lost even a penny of principal or growth. In fact, in this case, my cash value—my equity in the plan—actually increased by $12,205 that year. My equity grew about two-and-one-half times more than the $4,975 premium I paid.

I know plenty of people who would have given their right arm for just a fraction of that growth.

I still haven’t addressed the “insurance-company-keeps-my-cash-value-when-I-die” complaint, because that’s only one of the points this policy statement—a very typical statement, by the way—demonstrates.

The Death Benefit in a Bank On Yourself-Type Policy Can Keep Growing and Growing and Growing…

Many financial advisors seem to know only about whole life insurance policies where the death benefit stays level. Most self-declared financial authorities (including Dave Ramsey and Suze Orman, by the way), only refer to whole life policies where the death benefit stays level for the life of the policy. They think a death benefit is a death benefit is a death benefit.

Your own eyes will tell you they’re wrong!

With a dividend-paying whole life policy, dividends can be left in the policy to purchase additional coverage, known as paid-up additions (PUAs). They’re called “paid-up” because you pay for them just one time—in this case, with the policy dividend you were credited.

Thus, PUAs boost your death benefit, and they also have the effect of making your money in the plan grow in the most efficient way possible. I left my $3,866.10 in dividends I received in 2009 (that down year) in my policy—exactly the same as I did with all the other dividends I’ve received before or since. I just leave them in my policy, and that has really cranked up my death benefit—and my cash value, too.

Here’s the proof:

When this whole life insurance policy was issued back in January 1992, the death benefit was $250,000. That’s the Basic Insurance Amount I highlighted on the left in the statement at the top of this page. But by the time this annual statement was issued, the death benefit had grown to almost $400,000 dollars—$390,588, to be exact. That’s the Total Death Benefit I highlighted.

Over those seventeen years, the death benefit increased by more than 56%, nicely keeping up with the inflation we experienced during that same time period. Would the term life insurance policies Dave and Suze are constantly hawking have kept up with inflation? Not at all!

So what happens to the cash value in a Bank On Yourself-type whole life insurance policy over time?

It grows.

Bank On Yourself Authorized Advisors typically recommend leaving your dividends in the policy to purchase those marvelous, hard-working paid up additions. As I stated in Part 1, paid-up additions purchase additional coverage in the most efficient way possible. And more coverage means more cash value, too.

The above copy of my annual policy statement makes it crystal clear. Not only has the death benefit increase by well over $140,000 over 17 years, but my cash value increased just in that year ending January 31, 2009, by $12,205.

Compare that to the premium I paid! A $12,000 increase in cash value for just $4,975 in premium for the year—during a year that saw both the stock and real estate markets crash!

So Does the Life Insurance Company Keep Your Cash Value While Paying Your Beneficiaries “Only” the Death Benefit When You Die?

If I had died on or about January 31, 2009, the date this statement was issued, my beneficiaries would have received a death benefit of $390,588. You tell me: Does that mean the insurance company would be keeping my cash value and only paying my beneficiaries that basic $250,000 death benefit the policy started with?

The fact is, the $390,588 death benefit they would have paid is more than the original death benefit of $250,000 plus my cash value of $128,361. It’s over $12,000 more!

The so-called experts talk only about policies that don’t pay dividends. They don’t seem to understand the twin concepts of growing cash value and growing death benefit! This is just one more thing the experts don’t know about Bank On Yourself.

If you’re curious what else the experts don’t know, I’m happy to give you a free copy of my Special Report that reveals the exciting details about the 5 Simple Steps to Bypass Wall Street, Beat the Banks at Their Own Game and Take Control of Your Financial Future! In about 20 pages of easy reading, this report details all the valuable, safe wealth-building tips that run-of-the-mill, traditionally-trained financial advisors either don’t know or don’t want you to know. The report is free, and you can download it instantly to continue building your store of vital financial wisdom.

And when you’re ready to take action—or to find out just how marvelous your financial future could be if you add the Bank On Yourself method to your financial plan—just request your FREE Analysis, which will be based on your individual financial situation and your specific dreams and goals.

You’ll receive a referral to an Authorized Advisor (a life insurance agent with advanced training on this concept) who will prepare your free Analysis and share with you a Personalized Solution that can help you reach your financial goals much faster than you might imagine is possible.

You have absolutely nothing to lose by asking for your free Analysis. But you could be missing out on a tremendous tax-advantaged safe wealth-building strategy—and letting a world of financial freedom slip through your fingers—if you procrastinate! Please take action now.

If you missed Part 1 of What the Experts Don’t Know About Bank On Yourself, be sure to read it here. You’ll discover why so many financial planners must be wearing blinders when they claim it takes years to build up significant cash value in a properly-designed whole life insurance policy!

Here’s Proof That the Financial “Experts” Don’t Know About Bank On Yourself Whole Life Insurance Policies

Policy Statement Showing How Whole Life Policies Designed the Bank On Yourself Way are Different From the Policies Most Financial "Gurus" Talk About

Click on the policy statement above to see a larger version

Take a look at this life insurance policy statement. It’s for a policy I took out on September 15, 2002. I’m showing it to you because I want put to rest the misconceptions and untruths the so-called financial “gurus” are spreading about the cash value growth of well-designed dividend-paying whole life insurance policies.

The financial gurus tell you not to buy whole life insurance because your equity in the policy—your cash value—grows too slowly, and you won’t have any equity for the first few years.

This is simply not true of Bank On Yourself-type whole life insurance policies!

You’ll have cash value in the first year with a whole life insurance policy designed the Bank On Yourself way!

[Read more…]

Vacations are for People, NOT Your Retirement Plan

Do you remember how much value the stock market lost in the crashes of 2000 and 2007? I’m talking about what percent the market lost during each of those crashes.

If you’re not sure, take a guess before you read on.

The tech crash happened just 15 years ago. The S&P 500 lost 49% from March, 2000 to October, 2002. Many investors – myself included – had moved their money into NASDAQ tech stocks, which plunged 78% during that same 2-1/2-year period.

Then the S&P 500 peaked again in 2007 – just a few years later. By March of 2009, it had plunged 57%.

That makes two heart-stopping losses of more than 49% just in the last 15 years. [Read more…]

They’re lying to you, again..

A widely publicized new report from the Federal Reserve shows Americans’ wealth plunged by nearly 40% between 2007 and 2010, due to the collapse in home values and the stock market.

There’s one big problem with the Report, which reveals that the net worth of U.S.families has been reduced to a level not seen since 1992 – it’s one of the biggest lies ever perpetrated on the American public!

Here’s why: You can’t eat a number on paper!

Those statistics about how much Americans’ wealth had ballooned prior to the financial crash were pure fiction. Unless and until you sell your assets and (hopefully) lock in your gains, you have nothing more than a bunch of eye-popping numbers on paper that have lured most Americans into believing they have real wealth and financial security, when they do not.

At least that’s the case for Americans who save and invest the way the conventional wisdom tells us to. But it’s not true for people who use the Bank On Yourself method.
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Bank On Yourself Round-Up for week of July 13, 2011

Here are short summaries of three of the most interesting and thought-provoking items that have crossed my desk this week.  Enjoy… and tell us what you think!roundup

Would you be prepared if you suffered a 30% pay cut?

A shocking new report reveals that the average person’s pay levels off when they’re in their 40’s.  After that, about all you’ll be likely to count on will be cost-of-living adjustments to keep pace with inflation.

That will come as a real surprise to many people who assume their pay will continue to rise as they get older.

And if you lose your job while in your 50’s, you’re likely to remain jobless longer than when you were younger, according to the report.

Salary CutRead this sobering and well documented article from the Wall Street Journal.1

What’s your best self-defense?  When planning for retirement, assume the only salary increases you’ll get will be cost-of-living adjustments.  And identify a worse-case scenario – such as a 20% pay cut during your final ten years in the workforce – and try living on that income and putting the rest into savings.

[Read more…]

Is Bank On Yourself too good to be true?

A review of my book, Bank On Yourself, in the December 2010 issue of the American Association of Individual Investors (AAII) Newsletter declared that the concept is “too good to be true.”

The reason given was, “A life insurance policy loan is not truly a loan.  Rather, it is an advance that the insurer must eventually pay out.  Worse yet… policy loans can erode a life insurance policy over time.”  It also pointed to “potential tax liabilities.”

This review brought to mind one of my favorite quotes…

If you’re looking for an excuse, any one will do.”

– Dan Kennedy

So I wrote the editor and explained there was some misinformation in the review, and that I would like an opportunity to correct the record, pointing out that their motto is “Unbiased Investment Education.”unbiased investment education

The editor told me to let him know what I think is incorrect, and he “will take a look at it.”  I suspected he was just “humoring me,” but gave him the benefit of the doubt.  However, when I submitted my rebuttal, he replied that they would not publish it because “there are no factual corrections to be made.”

I informed AAII I would be publishing my rebuttal on this website, and let YOU decide who is taking things out of context, committing sins of omission, and twisting the “facts”… and who is being fair and unbiased.  We’ll pick three of the most interesting, insightful and/or humorous comments made on this blog and award the posters their choice of a $25 gift certificate for a restaurant in your area or a personally autographed copy of my “too good to be true” book.

Besides that, there are several points made in my rebuttal that I have not made elsewhere, so you will find value in reading this (I made it a bit more colorful for your reading pleasure)…

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The “unrealized loss” riddle

Note: this post has been updated in November 2011

-$62,734.06. That’s the “unrealized” loss we’ve had in one of the mutual funds in our retirement account, according to the statement we just received.

A $62,734.06 unrealized loss.

I keep staring at the statement, hoping that number will somehow magically turn positive.  After all, we’ve had a nice run-up in the stock market recently, and that mutual fund has one of the best long-term track records of any fund.

What the heck is an unrealized loss, anyway?

I realize I’ve lost a whole bunch of money.  And I remember working my butt off to make that money!”

A $62,734 “unrealized loss.”  Is that an oxymoron, like “Great Depression,” “small fortune,” “accurate forecast” and “quickly reboot”?

OXYMORON definedI dunno if it qualifies as an oxymoron.  But I do know it’s moronic that we pin our hopes and plans for financial and retirement security on things we can’t predict or count on!

My husband Larry is 61 and theoretically four years away from retirement.  He probably won’t retire when he’s 65 because he says he’d get bored.  But if we were relying on the conventional wisdom about saving for retirement, it wouldn’t even be an option for him.

Did you know that 40% of retirees were forced to retire sooner than planned, due to health problems, job layoffs and other factors beyond their control?

Of course, none of us want to think that could happen to us… but what would you do if it did?

Another mutual fund in our retirement account shows an $8,012.16 “unrealized” gain.

And there lies the rub:  You don’t actually lock in a gain or loss until you sell an investment.

(November 22, 2011 Update:   Our most recent retirement account statement shows our “unrealized loss” is virtually unchanged since I wrote this blog post almost a year ago.  And looking at the Dow’s ups and downs over the past year makes a day on the roller coasters at Six Flags look tame.)

Oxymoron cloud

Unfortunately, studies and history show that most of us are far more successful at locking in our losses than our gains.

Can you tell me what your retirement account will be worth on the day you plan to tap into it?  (Not what you hope it will be.)  If your answer is “no,” how can you even call it a plan? And what will you do if the market plunges by 50% – againright before you planned to retire?

[Read more…]

Bank On Yourself: A financial plan you can count on

Oh what a roller-coaster year this has been!  Our entire financial system and economy almost fell off a cliff.Bailout

And while there are some hopeful signs of new life in the economy, this year has also brought us:

  • Massive bailouts
  • A tripling of an already-bloated federal deficit
  • A falling dollar
  • Rising foreclosures (and likely to spike as billions of dollars in ARM’s are now coming up for adjustment)
  • Major banks and investment houses taking on three times (!) the risk they were before the collapse

So what do you think next year has in store for us?

No one really knows for sure.  (Well, except maybe the folks at the Psychic Hotline.)  So how do you prepare for a very uncertain future?
Here’s a quick quiz that may reveal an answer for you…

What’s the one financial asset that increased in value during the market crash of 2008?  And in 1929?  And in every period of economic boom and bust in between?

Answer:  The product used for Bank On Yourself:  Cash-value life insurance.

As I’ve mentioned, my husband Larry and I now have 18 Bank On Yourself policies.  I’ve picked one of them to show you how a dividend-paying whole life policy like this can grow over time – even when the markets are plummeting.  It’s a great example of how Bank On Yourself gives you the peace of mind that lets you sleep at night.

Here’s how much this plan has grown each year since the beginning of 2000, a period that includes not one, but TWO devastating market crashes.  In four of these years, the S&P 500 was down for the year, as you can see in this side-by-side comparison:


If you had put $10,000 into an S&P 500 Index fund at the beginning of 2000, how much do you think it would be worth today?

Take a guess before you read on.

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