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…]

52% of Americans Will Have to Reduce Their Lifestyle in Retirement

52% of American households are at risk of not being able to maintain their standard of living in retirement – even when factoring in potential proceeds of a reverse mortgage.

That’s according to the Center for Retirement Research at Boston College.

Let’s take a look at three critical reasons for that… and what you must do now to protect yourself…

Problem #1: People continue to live longer, but aren’t working longer

According to the Social Security Administration, 25% of people turning 65 today will live past 90, and one out of ten will live past 95, yet most financial planners base their projections of how much money you’ll need on your living to age 85 or so.

What if you’re one of the lucky ones who hangs on until 100 or longer? And just how “lucky” will you feel if you can’t provide for yourself during those final years?

Solution: Assume you’ll live to at last age 100 when determining how long your money will need to last you.

Problem #2: Underestimating health-care and long-term care costs in retirement

The numbers are shocking, and almost no one is accurately accounting for this: A 65-year-old couple retiring now will need $245,000 just to cover out-of-pocket health-care costs during retirement, PLUS another $255,000 to cover one average stay for one person in a nursing home.

Whoa! That’s half a million dollars you’ll need just for medical care… but most people close to retirement don’t even have that much in total retirement savings. [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…]

Trump Tweets, Black Swan Events and Your Money

How much does your financial future depend on a 140-character Trump tweet, stroke of a pen on an Executive Order, or an off-hand comment to a reporter?

A lot, as these recent news headlines reveal:

  • “Trump Sinks Pharma Stocks on Medicare Price Negotiation”
  • “Dollar Dumps Most in 30 Years as Trump Raises Doubt Over Strong Dollar”
  • “When Trump Tweets, Wall Street Trades – Instantly”
  • “Trump, Not the Fed, Is What Moves Markets Now”
  • “Toyota Stock Drops Immediately After Trump Tweet”
  • “Trump’s Executive Orders Send S&P 500 to an All-Time High”
  • “Dow Jones Industrial Average Sells Off After Trump’s Executive Order on Immigration”

As you can see, when President Trump tweets or speaks, the markets react – in some cases violently.

Whatever your opinion of Trump is, there is one thing we can all agree on:

We are in uncharted waters. We have never had a president like Trump. We’ve never had an administration like Trump’s. There is no historical precedent for this. [Read more…]

Five Pieces of Free Financial Advice on Saving and Investing You Should Avoid

We all love free advice. Why pay for advice if someone is willing to give it to you for free?

Some advice will cost you little or nothing if it’s wrong. “You should wear these shoes with that suit.” “Try the catch-of-the-day. You’ll love it!” “I think you should turn left here.”

Other bad advice can be much more costly—both now and for the rest of your life.

This article focuses on free financial advice. We’ll tell you why five bits of so-called “wisdom” you’ve heard over and over again are wrong.

We’ll give you some tips on choosing sources of free financial advice you can trust, while avoiding all the dumb financial advice that’s out there.

Why Free Financial Advice Is Often Dumb Financial Advice

[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…]

Why Your Efforts to Grow a Retirement Nest Egg in the Stock Market May Disappoint You

You’re not reckless. You don’t like to take unnecessary risk. But you don’t want to run out of money in retirement. And your financial advisor says you must invest in the market to provide for a secure retirement.

Do you really have to take those risks? What if I told you that hundreds of thousands of people are building their retirement nest egg without even going near the stock market … or the real estate market … or precious metals?

When people think of “the stock market,” they often equate it with the Dow Jones Industrial Average (DJIA) they see quoted everywhere.

The Dow is the most recognized market index in the world, and looking at its performance can help answer the question: Does your advisor’s advice make any sense?

The Dow has gone up over time – but has it gone up enough to make it worth the risk?

Only you can decide if it was worth the risk to you. But to make an intelligent decision, you first need the answers to two questions:

  1. How much has the Dow gone up?
  2. What were the risks?

Only then can you decide if it was worth it. [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…]