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…]

21 Reasons Life Insurance Policy Owners Love the Policy Loan Feature

We recently published a 3-article blog post series inspired by an article that financial planner and investment advisor Michael Kitces wrote about the problems with “banking on yourself” with life insurance policy loans.

Then we invited our readers to tell us what their biggest take-away from these articles was, and to share their personal experience with Bank On Yourself policy loans versus other sources of financing.

The many comments left on these three blog posts demonstrated once again how insightful and articulate our readers are! We’ve published excerpts from some of the comments we received below, where you’ll find 21 reasons why using a Bank On Yourself-type policy loan to access cash beats any other way of accessing capital!

In the first article, we discuss four things Mr. Kitces got right about the Bank On Yourself concept, and then reveal what he got wrong, including five fundamental concepts.

Check out What Michael Kitces Missed in His Bank On Yourself Review, Part 1. [Read more…]

The 8th Wonder of the World? Here’s proof

Recently we “ethically bribed” our readers into learning more about what I’ve called the “8th Wonder of the World.”

You see, the two most common reasons people have for adding the Bank On Yourself method to their financial plan are:

  1. To grow wealth safely and predictably every year – no matter what’s happening in the market or the economy – and to protect themselves from losses in future market crashes
  2. To become their own source of financing when they want to make a major purchase or when an emergency expense comes up – so they can get access to money when they need it and for whatever they want – no questions asked

The second reason – the ability to become your own “banker” – is so compelling that once people use that feature of their Bank On Yourself plan, they often write to tell us what a powerful and emancipating feeling it is. [Read more…]

Michael Kitces’ Big Blind Spot on Bank On Yourself Policy Loans

In his review of Bank On Yourself, Michael Kitces repeatedly harped on the worst-case scenario of a life insurance policy owner taking out a life insurance loan with no regard for ever paying it back.

Kitces rightly pointed out there could be significant tax consequences if a life insurance policy were to lapse due to a large policy loan.

If the interest is not paid, it gets added to the loan balance. Eventually the loan balance could come so close to the cash value securing the loan that the life insurance company—after giving fair warning—would take the cash value to pay off the loan, causing the policy to lapse.

What Kitces didn’t mention is that if the loan balance ever does exceed the available cash value, paying some or all of the loan interest out of pocket generally solves the problem. And he didn’t tell you about the option of taking a policy “reduced paid-up,” as I discussed in our previous article on this topic.

So, we agree with Michael Kitces that a growing loan can cause a life insurance policy to lapse.

But Kitces mostly talks about “when the policy lapses.” Huh? “When”? That’s an odd assumption. It’s like saying, “Don’t take out a mortgage to buy a home, because when you default on your loan …”

Does he really think we are that irresponsible? [Read more…]

Here’s What Michael Kitces Missed in His Bank On Yourself Review, Part 2

In part 1 of this article, I explained that financial planner and investment advisor Michael Kitces wrote a review of the Bank On Yourself concept that redefined my trademarked phrase, “Bank On Yourself” to fit his interpretation of how the concept works.

Now I’ll show you how Kitces missed five critical key requirements of the Bank On Yourself concept—and why it’s so important that you don’t make the same mistake.

To review, to truly be banking on yourself

  1. You must use a dividend-paying whole life insurance policy
  2. The policy must have a “non-direct recognition” policy loan feature
  3. The policy must incorporate a flexible policy design
  4. You, as the policy owner, must be an “honest banker”
  5. You must work with a knowledgeable advisor

Let’s See How Michael Kitces Misunderstood—or Simply Missed—Each of These Five Requirements of Bank On Yourself:

1. You must use a dividend-paying whole life insurance policy

[Read more…]

Here’s What Michael Kitces Missed in His Bank On Yourself Review, Part 1

Financial planner and investment advisor Michael Kitces understands a lot about many areas of money and finance. He has been to school. He has twice as many letters after his name as he has in his name. Literally.

Surprisingly, Kitces does not understand some basic fundamentals of the Bank On Yourself strategy for personal finance.

Kitces wrote a review of the Bank On Yourself concept. And while he got some of the fundamentals right, he missed some very important points.

From time to time, readers ask us about Kitces’ article, so I want to clear up the misconceptions in it. I’ll cover four things he got right about the Bank On Yourself strategy, then I’ll reveal the things Kitces got wrong—including five fundamental concepts.

Here’s What Michael Kitces Got Right in His Bank On Yourself Review …

In his Bank On Yourself review, Michael Kitces correctly stated four things:

1. Kitces: Permanent life insurance “gives an insurance company the means to provide policy owners a personal loan at favorable interest rates, because the cash value provides collateral for the loan”

Well stated! You can’t take out a life insurance policy loan unless you have a life insurance policy with enough cash value to serve as collateral for the loan. And the interest charged for policy loans is generally at competitive, below-market rates.

2. Kitces: “Even as cash value life insurance operates as collateral for a life insurance policy loan, it also remains invested, earning a rate of return that slows the erosion of the net equity in the policy”

[Read more…]

The Bank On Yourself No-Nonsense Guide to Life Insurance

Life insurance is a subject we don’t like to think about. It’s right up there with going to the dentist and writing the annual Christmas letter. (Do people still even do that?)

Thinking about life insurance is one more reminder that we may not live forever. Ugh.

But not going to the dentist doesn’t make things better. And not thinking about life insurance won’t help you live longer.

On the other hand, going to the dentist and thinking about life insurance are two really positive things you can do that are almost guaranteed to make your life better.

If peace of mind, a sense of security, and the knowledge that you’re doing all you can for your family and yourself are important to you, then it’s wise to spend a little time thinking about life insurance.

But life insurance doesn’t have to be complicated or boring—which is why we created this Consumer-Friendly Guide to Life Insurance.

Here are some interesting facts about life insurance that we cover in our Guide. Did you know that …

[Read more…]

Could the Government Seize Your 401(k) and IRA Money?

Is it far-fetched to wonder if the government could take control of your retirement savings in 401(k)s and IRAs?

Or is that just a paranoid conspiracy theory?

The fact of the matter is that it’s not far-fetched, or a conspiracy theory. The groundwork has already been laid.

And the government already gave banks the green light to seize your bank accounts.

Read on for the facts – and I urge you NOT to discount the importance and urgency of this issue affecting your hard-earned savings…

The Government Has BIG Plans for Your Retirement Savings

An article in American Thinker titled “The Feds Want Your Retirement Accounts” revealed that, “Quietly, behind the scenes, the groundwork is being laid for federal government confiscation of tax-deferred retirement accounts. Slowly the cat is being let out of the bag.”

And Bloomberg reported that,

The U.S. Consumer Financial Protection Bureau is weighing whether it should take a role in helping Americans manage the $19.4 trillion they’ve put into retirement savings.”

For the last 18 months, the Treasury Department has been testing the “myRA” program – which Obama created through executive order – no Congressional approval needed.

The myRA, which stands for “My Retirement Account” supposedly “guarantees a decent return with no risk of loss.”

And the only investment allowed in this account is a low-yielding Treasury security.

Of course, the Treasury wants to get more people signed up for this program, because it means more funds flowing right back into the U.S. Treasury to help the government meet its voracious borrowing needs. How convenient… [Read more…]

What’s In “The Big Black Book of Income Secrets”?

If you receive emails from investment advisory services, you may have gotten a sales pitch for The Big Black Book of Income Secrets from the Palm Beach Research Group.

The promo promises you’ll discover “30 unique income tools” in The Big Black Book of Income Secrets.

The offer entices you with a “risk-free 60-day trial subscription to the Palm Beach Letter.” If you’re not satisfied before the two-month trial is up, you’re told you can get a refund and keep the book and some “bonus” reports that are included in the offer.

To find out if The Big Black Book of Income Secrets lived up to its promises, we signed up for the “Platinum Subscription” for $99 for the first year, which comes with additional “bonus” reports.

Three weeks later, the book arrived, containing 22 (not 30 as promised) strategies, with a cover letter from the Publisher, Tom Dyson, explaining that we could log into their website to access the reports we signed on for and back issues of the Palm Beach Letter. (I guess for $99, they can’t afford to mail you hard copies of the reports.)

The First Red Flag in The Big Black Book of Income Secrets is “Income For Life”

[Read more…]