Suze Orman and Dave Ramsey: Let’s debate!
March 14, 2009 by Pamela Yellen
Are you wondering why you haven’t heard about Bank On Yourself before? Or why – if it’s so good – everybody isn’t already doing it?
Here’s why…
S&P 500 loses 25% over the 10 years from 1/1/00 - 12/31/09 (and inflation took another 29% bite)
If you browse the personal finance section of any bookstore, turn on the TV or open a magazine on finance, you’ll discover that 99 out of 100 financial “gurus” will insist that whole life insurance is a lousy place to put your money. Most will recommend you buy term life insurance instead and invest the difference in mutual funds.
That’s in spite of the fact that, had you invested in an S&P 500 index fund for the past decade, your nest-egg would have been shredded by almost 25%. And that doesn’t even factor in 29% inflation during this period!
But I’m getting a little ahead of myself. Part of the problem is these financial experts know nothing about the specially designed type of dividend-paying whole life policy used for the Bank On Yourself method…
It’s not really their fault. Out of 1,500 major life insurance companies only a handful offer a policy that has all the features required to maximize the power of this concept. That’s one reason it’s not even mentioned in most industry training programs.
And the fact that an advisor who helps a client implement a Bank On Yourself-designed policy takes a 50-70% cut in commission could be another reason why you haven’t heard of this before now.
So how is a Bank On Yourself-policy different from the kind of whole life policies Suze Orman, Dave Ramsey, David Bach, and others talk about?
Here are a few key differences:
These experts say the money you can have access to in the plan (your “cash value”) grows too slowly in a whole life policy, and say you typically won’t have any cash value at all in the first three years.
A Bank On Yourself policy, however, incorporates a special rider or option that puts the growth of your money in the policy on legal steroids, so you have significantly more equity, especially in the early years of the policy. This allows you to use it as a financial management tool from Day One.
Don’t take our word for it – here’s a statement from a Bank On Yourself-designed dividend-paying whole life policy, at the end of just one year.
Most financial experts, including Suze and Dave, write about policies where your death benefit stays level for the life of the policy.
However, in a dividend-paying whole life policy, dividends can be left in the policy to purchase additional coverage, while at the same time growing your cash value in the most efficient way possible. This policy statement shows you how this works, and proves these policies are different from the ones Suze and Dave talk about.
Please note that this statement is from a policy I started before I learned about Bank On Yourself, and it has grown much more slowly than a policy designed to maximize the power of the Bank On Yourself concept.
Even so, this policy has left my mutual funds and real estate investments in the dust.
The financial experts often rant about how, when the policy owner dies, the insurance company “only” pays you the death benefit and keeps your cash value.
But with a Bank On Yourself policy it’s very different, as you can see on this policy statement.
So I am throwing out the gauntlet to Suze, Dave or any expert who wants to challenge me. Just name the time and place!
I’m so confident that they’ll come around once they get the facts about Bank On Yourself, that I’ve reserved a special place for their endorsements along with the trusted experts who have already endorsed Bank On Yourself.
And remember, Bank On Yourself will beat anyone’s best financial strategy or we’ll pay you $100,000!
No two policies are alike, because each one is tailored to the clients unique situation. So your results will be different. To find out what your bottom-line numbers could be, and how your financial picture could improve if you added Bank On Yourself to your financial plan, you can request a free Bank On Yourself Analysis. There’s no obligation.
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1. What is the interest rate you pay us ? 2. Is the interest earned monthly, annually, or by a contract ? 3. If we borrow back some of our own money from you, what interest rate do you charge us? 4. If we borrow back our money from you, is the interest you charge, simple interest, or compounded on the unpaid balance monthly?
5. We seem to be getting all the good news, what is the down side or bad news?
The growth in a dividend-paying whole life policy isn’t based primarily on interest rates in the conventional sense. You receive a guaranteed increase every year and have the potential for dividends. (Dividends are not guaranteed, but have been paid by the companies used by Bank On Yourself Authorized Advisors every single year for more than 100 years, including during the Great Depression.)
The growth is both guaranteed and exponential. There is a graph that shows you how this typically works in comparison #5 of the section where I compare Bank On Yourself versus investing in the stock market.
No two plans are alike, and each is custom tailored to the client’s situation, so your results would be different.
The interest rate charge by the insurance company on policy loans is a variable rate (and is simple interest) that is typically lower than the rate charged by finance companies, etc.
However, it matters little what rate the insurance company charges you. Here’s why: The interest paid on policy loans ultimately benefits all policy owners, in the same way they would benefit from all the investments the company makes, in order to deliver the benefits promised to policy owners.
This is hard for many people to grasp, and I’ve been called a few choice names for saying this.
But the proof is this: If you borrow from your policy to finance your cars, for example, and pay your loans back at the interest rate the company charges, you’ll end up with the exact same cash value as you would if you never used the money in your policy to finance anything.
I just showed one person an example of this. If he used his plan to finance four $25,000 cars over a 16-year period, paying his loans back at the interest rate charged by the company, he ends up with $368,441 of cash value at age 65… the exact same amount he’d have if he never used the plan to finance anything.
Except he gets to enjoy four cars by running the purchases through his plan knowing his nest-egg continues growing without missing a beat!
In fact, he has the identical cash value at the end of each loan pay-back period, regardless of whether he uses the plan for financing.
Also, when your plan is administered by one of the few companies that offer this feature, when you take a policy loan, your money in the plan grows as though you never touched a dime of it.
I’ve been very clear that Bank On Yourself isn’t a magic pill. (There are none, in case anyone hasn’t figured that out by now.) It requires a little patience and discipline – traits that not everyone has. There is a start-up phase before the plans kick into high gear. It’s a one-time requirement that pays a lifetime of benefits.
But with a Bank On Yourself plan, you’ll have significantly more equity in your plan in the early years (as well as throughout the life of the plan), than you would with a traditional whole life policy.
To see what your bottom-line results could be if you added Bank On Yourself to your financial plan, request your free Analysis here.
Pam- You you used the example of buying cars what about using this for real estate transactions. I’m a mtg broker and i see great value in this is there anyway to hook this up with getting a mtg or refi?
also pls clarify: the interest you pay on borrowing agnst your policy goes into the insurance company pockets but in the end the more money the insurance co makes the bigger dividend it can declare for its members? where like borrowing vs 401k u pay interest to yourself. even if it cant be used for a mtg i can still crosssell this with mtgs as a savings tool.
and what happens when one retires does this act like an annuity?
Pamela on May 4th, 2009 7:43 pm
Quite a few people use their Bank On Yourself plans to finance real estate transactions, myself included. Several of the folks who shared their stories in my book do this as do several of those who tell their stories on our website. Pay particular attention to the stories of real estate entrepreneurs, Suzi Hersey and Greg and Christy Gammon, on the website.
Regarding where the interest you pay on policy loans goes:
The interest charges are not credited directly to your policy. That’s because they cannot be. Loans do not come out of any individual policy’s cash value, but from the company’s pool of assets or general fund. By the same token, interest paid on loans goes back to the general fund. The policy holder ultimately gets the benefit through a combination of guaranteed annual increases, plus any dividends the company pays.
The best way to demonstrate how the policy owner ultimately benefits from the interest they pay on policy loans is by comparing the growth of a Bank On Yourself plan that is never used to finance anything against one that is.
We compared a man using a Bank On Yourself policy to finance $25,000 cars every four years and paying the loans back at the interest rate the company charges, to having him not use the plan to finance anything, and thus owing no loan interest.
All other variables are identical, including the premium paid.
When he finishes paying back one car loan in the 12th year, he has $117,061 of net cash value, the exact same amount he’d have if he hadn’t used the plan to finance anything. Four years later, after repaying another car loan to his Bank On Yourself plan, he has $171,455 of cash value, again regardless of whether he finances anything through his plan. Four years later, he has $238,830 in the plan whether he uses it to finance a car or not.
And, when he’s ready to retire, he has $368,441, whether or not he used his policy to finance anything, and in spite of any interest he paid the insurance company! (However, he did get the use and enjoyment of the cars he self-financed, knowing his nest-egg was growing just the same.)
So, who did the interest he paid to the insurance company ultimately benefit?
When you retire, you don’t want to turn the policy into an actual annuity, but you can start taking income from the plan through an appropriate combination of dividend withdrawals and loans against your cash value (which you will not repay, if you’re taking retirement income).
CAUTION: Do not attempt to do this without the guidance of a Bank On Yourself Authorized Advisor who has the necessary advanced training in this method. Otherwise, your plan could grow much more slowly, you could lose the tax advantages, or both. You also most likely won’t get the maximum value from your plan. (I know this from painful personal experience and from the letters I receive from people who ignored this advice.)
You can request a referral here to a Bank On Yourself Authorized Advisor and receive a free, no-obligation Analysis that will show you the bottom-line results you could get.
Can this concept be done in Canada? I have some experience with whole life in Canada and it wasn’t too pleasant and sold to me without a strategy. Interested in learning more.
Joe
Yes, the Bank On Yourself Concept does work in Canada, although the products and tax laws are different. However, we do have Bank On Yourself Advisors in Canada who are familiar with the local laws and products who have helped many people implement this there. Request a referral to one of these advisors here.
Hello, I am a College Funding Advisor working with the National Association of College Funding Advisors. I work with parents of high school students showing them how to apply for financial “need based aid” and if they don’t qualify because of income and assets, I discuss the benefits of using Whole life to accumulate cash to pay the cost of attendebnce at their college.
It is so good to see that this material exists to support my recommendations to parents using Whole Life Inasrance cash values to pay their expenses for college.Can you tell me how I can become an Adviror with you? Thanks John
Hi John,
In the “small world” department, the same organization (N.A.C.F.A.) also runs the Bank On Yourself Authorized Advisor training program, so you already know what a quality operation they run.
And yes, the process and product used for Bank On Yourself works very well to help parents pay for college without going broke. Too many parents make the mistake of paying for college using funds that could have been used to fund a more comfortable lifestyle in retirement. I have a whole chapter on this in my book (chapter 10).
Here’s the full details about the Bank On Yourself Authorized Advisor training program. (Only those with at least one year experience in financial services and who meet certain other requirements will be considered.)
Hiya! Plan sounds good. On the example of the 25,000 car purchase every 4 yrs on the Debate Dave Ramsey and Suzi Orman page, is the combination of the Insurance (monthly) premium paid AND the loan (monthly) payment paid (including the interest rate) equal to the payment one would otherwise pay w/o the loan, to achieve the same cash value stated ($368,441). Hope my question is stated coherently…
Thanks, Jeff
Hi Jeff,
Yes, the $368,441 cash value figure assumes you repaid the car loans, in addition to paying the monthly premium. You would have been required to pay the loan back, if you’d borrowed from a finance company of course. (If you don’t repay the money you borrow from your policy for cars, vacation, etc., it’s like stealing from yourself!)
The difference is that by running these purchases through a Bank On Yourself plan, you’re recapturing the full cost of it along with most or all of the interest you would have otherwise have paid a finance company or credit card.
The policy referenced above actually has sufficient dividends accumulated in the plan well before that point to use the dividends to pay the premiums, rather than paying for them out of your cash flow. But we based this example on paying the premiums during the whole period out of cash flow.
After all, the more premium you put in it, the more of your lifestyle you’ll be able to recapture AND the more money you’ll have for retirement – without the risks of stocks, real estate or other investments.
2 things about LIFE insurance in general…Whole/Term/etc.:
A) The purpose is Life Insurance is to Pay when You Die!
B) The BEST type of Life Insurance is the kind that is In-Force WHEN You Die!
Tha’s the ABCs of purchasing Life Insurance. — eResumes4Vips
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I don’t know why I seem to have such a block getting my mind around this concept. Most of the comments are about policy holders investments, accumulation and pay-out. What I don’t understand is how does the Company earn/accumulate/receive the returns to guarantee the increases to the policy holders. A simple try:
$100,000 paid up policy – the company invests in “conservative govt bonds” and receives a 3% return = $3,000. How does the Company guarantee/pay/increase my policy by 8 to 10%?
Thanks
KlausG
Hi Klaus,
The companies don’t guarantee an 8% increase. Someone in a 35% tax bracket would have to get a 7-8% return before taxes to equal the net return on a typical Bank On Yourself designed policy (under current tax law, you can take retirement income from the plan with little or no tax consequences).
The cash value of a whole life policy is guaranteed to equal the death benefit at maturity (typically age 121 these days) AND the death benefit increases over time for several reasons, because of the type of policy this is and the features added onto it.
These companies have been doing this for a very long time. By investing conservatively primarily in long-term, high-grade corporate and government bonds (and having sufficient reserves to be able to hold on to assets for very long periods of time, if necessary), and assuming your policy is structured correctly (the Bank On Yourself way), this can give you peace of mind, and a retirement income you can predict and count on.
Pam:
I used to work at a large mutual insurance company. 7, 8, or even 9% dividends are available at a few companies. People need to understand that a substantial portion of the dividend is simple a “return of premium” based on favorable claims experience. So, maybe 2-3 %of the total dividend is a portion of the spread between investment returns and agreed upon dividend, and the rest is favorable claims experience.
Does the company that underwrites the BOY policies have a proactive policy that contacts clients when their BOY policy is about to go to a MEC? One way to supercharge these policies is to do a “short pay”……….:)
Many if not most insurance companies will alert the client if the policy has become a Modified Endowment Contract (MEC) and give them a window of time to “Un-Mec” it by refunding the premium overpayment.
If I understand you correctly, the more you borrow the more the plan benefits you but to make this simple for me to understand let me use an exaggerated example. If three people borrow from a pool and two pay back $100 of interest and the third pays back $1000 of interest, the pool now has $1200 of interest to return to the borrowers. If they all get an equal amount of $400, the one that contributed the most does not receive the most benefit. Am I on the wrong track here, do borroweres actually get a return based on what they paid into the fund?
It doesn’t matter how much interest you pay on your policy loans. As policy owner, you ultimately recapture the interest you’ve paid. This is explained in detail on pages 53-54 and 68-69 of my book.
Pamela,
What percentage OVERALL of your entire portfolio should be in a BOY policy or policies? Isn’t it fairly risky to put “all of your marbles in one (insurance company) basket” when you consider the default of giants like AIG and others over the past couple of years? Even with an AM Best top rating, aren’t these insurance companies subject to the risks of the economy as well and certainly could potentially fail just as any single business could? This would be my only concern in getting too far leveraged into a BOY policy or more than one BOY policy with the same insurance company. Any thoughts about this? Thank you.
About 60% of my portfolio is in whole life insurance policies.
I wish it was more – it’s about the ONLY asset we have that hasn’t disappointed us.
I address the issue of AIG, and the multi-layer safety net life insurance has here – many people don’t realize AIG’s life insurance companies all survived intact, and, in fact, have been part of the solution, NOT the problem.
Insurance companies are legally required to invest conservatively and are audited regularly to ensure they have sufficient reserves to cover future claims. They aren’t allowed to take the kind of risks banks and investment companies have taken and are continuing to take.
How does Bank on Yourself concept differ from the Infinite Banking System ? Thank You
Nelson Nash, who coined the phrase “Infinite Banking Concept”, is my mentor. The Bank On Yourself Authorized Advisor training and certification program is the only independent training program Nelson endorses.
Since when has Dave Ramsey EVER recommended buying Whole Life insurance? He is in fact the biggest advocate AGAINST Whole Life that I’ve ever heard.
Your misrepresentation of the FACTS on your home page puts your whole program on shaky ground right from the start.
Read this before you go spouting off any more nonsense.
http://www.daveramsey.com/article/the-truth-about-life-insurance/lifeandmoney_insurance/
Perhaps I can recommend a good reading comprehension course to you, as you clearly missed my whole point.
I said (and PROVED) throughout my website that a Bank On Yourself-type policy is a totally different animal than the kind of policy Dave Ramsey, Suze Orman, etc., talk about. I also clearly say that I’m so confident they’ll come around once they take the time to learn about this, that I’ve reserved a spot for their future endorsement of Bank On Yourself alongside the trusted experts who already endorse this.
You know its funny…even though Dave does not really like the Whole Life policy, he sure advocates paying yourself back and buying cars like a Wholelife “tax Deffered” policy, except that his version will be taxed and a properly structured B.O.Y. won’t.
Want proof he buys cars the same way….here you go Ramsey Lovers….yes its true…..Your idol buys cars and pays himself back and repeats…..as per this youtube video—-> http://www.youtube.com/watch?v=iIgLyl66QxQ
The only difference….A whole life policy will grow larger and have less fluctuation than the stock market.
Hi Will,
I’d seen this video before and the holes in his logic are big enough to drive a Mac truck through ‘em.
Taxation is one thing he left out, as you mentioned, as is the certainty and growth you get with a Bank On Yourself-type whole life policy.
But there’s a whole bunch more differences, which is why the $100,000 cash reward I’ve put out there remains unclaimed.
I have money in IRAs and i want to get the money out and start the boy with it. Can this be done?
I am in my mid 50s is it to late to start a boy acct?
It is possible to do that, but you need to review your options closely.
Mid-50’s is definitely not too late to start – in fact, policies on people between the ages of 45 – 55 or so, grow very efficiently.
I strongly urge you to speak with a Bank On Yourself Authorized Advisor who can look at your situation and make recommendations, as well as show you the bottom-line results you could get .
You can request an Analysis and get a referral here.
This is a life insurance policy, right? How much am I going to have to pay or put into it every month?
Yes it is and you can start at whatever level is comfortable for you.
To find out what your bottom-line numbers and results could be if you added Bank On Yourself to your financial plan, request a free, no-obligation Analysis.
This is a ridiculous attempt to compare whole life insurance to the “stock market” after the worst decade. I can show you how investing blows the pants off whole life using investing basics. Balanced Funds. How many funds do you want that have produce 10% per year compounding average to convince you?
Some comments are so juicy, they are worthy of their own blog post.
Geez Tob, well most people are not really good investors. And assuming people are good market timers, you “might” be right.
But then again have you ever heard of “Survivorship Bias”.
Look it up…It will make you think about all those funds and managers screaming 10% homeruns.
Also as a note, there is only like 1 stock that is still the same in the DOW, so numbers can be inflated quite a bit.
Is there an age limit? I’m nearing 70 but still working.
Age 70 usually isn’t too old to start. And there’s a good chance you could live at least 30 more years, so you want to make sure your money doesn’t run out before you do.
To find out how the Bank On Yourself program could benefit you, request your free Analysis here and you’ll get a referral to a Bank On Yourself Authorized Advisor.
Good luck on debating Mr. Ramsey regarding the BOY concept. Anyone with six weeks of distorted life insurance training is incapable of grasping the historical significance of permanent life insurance let alone the BOY concept. Keep up the great work, Pamela!
I’ve read the book, created my goals. Have term insurance that will need to be replaced in 3 years. Had past advisors (not bank on yourself) that I’d rather not discuss. I’m ready but here is my concern. At this point I would like to have an advisor thats been doing this for awhile. How can I make that happen?
I understand your concern. There are only approximately 200 advisors who have qualified for and completed the rigorous training necessary to become a Bank On Yourself Authorized Advisor. As I mentioned in my book, these advisors work under the direct supervision of Bank On Yourself policy design specialists who have each personally designed literally thousands of policies.
So when you are referred to a Bank On Yourself Authorized Advisor, you are in good hands. You can get a referral to one when you request a free, no-obligation Analysis.
While the techniques being promoted are intriguing, it is disturbing that you are closely guarding the names of the MAJOR insurance companies who can provide these types of policies. Annual statements are nice but will the insurance copmany be around to pay the ultimate death benefit many years down the road? That’s my worry.
I’m not a licensed financial advisor, I’m an educator. As such, I’m not legally allowed to recommend or even list specific companies.
I can tell, however, that the Bank On Yourself Authorized Advisors only use companies that rank in the top 3% of all insurance companies in terms of financial strength. And they have all paid dividends every year for at least 100 years.
When you request a free Bank On Yourself Analysis, you’ll get a referral to a knowledgeable advisor who will make a recommendation based on your specific situation, and encourage you to do your due diligence into any company they recommend for you
You can also learn more here about the multi-layer safety net life insurance companies have.
I listened in a few years ago on the Nelson Nash training you sponsored, and I have personally met with Nelson at his home for some one-on-one discussions. I have not implimented Infinite Banking in my planning practice as of yet, but I’m looking again.
If I understand things correctly, Nelson’s “coaching” in Birmingham is more oriented to the consumer and your training focuses on the producer. Is that correct?
The Bank On Yourself Authorized Training Program is considered the gold standard for financial advisors, and it’s also the only independent training program for advisors endorsed by Nelson.
It includes rigorous training in the concept, products, how to structure the policies to maximize growth, and how to coach clients to use the policy throughout their lifetime.
As soon as i read that your long-winded and boring program is tied to whole life insurance, i realized it was a big scam. I did not finish the book. Thank God i did not buy it, but borrowed it from the library, then returned it very quickly.
Long live Dave Ramsey, and Suze Orman, and God Bless them.
Some years ago, I heard of a concept called “Bank On Yourself” and obtained a booklet. I believe it was conceived by a gentleman named Nash. I presume there is a connection. Could you explain what it is, please.
Nelson Nash is one of my mentors.
I am interested in this concept on behalf of my adult grand-children, all of whom live in Great Britain. Would this translate?
If you are the owner of the policies, I believe it would work. You should discuss the specifics with a Bank On Yourself Authorized Advisor by requesting a free Analysis here.
The only question I have is with regards the tax benefits of investing in the dividend paying whole life insurance. The results are always comparing the IRA after paying taxes when withdrawn and the insurance policy withdrawn without paying taxes.
This makes the “Bank On Yourself” look great. No one ever mentions the added taxes that the individual incurs on the front end when they are paying taxes on their whole income with no deferred taxes. This lowers the apparent benefit of the “Bank On Yourself.”
It seems to be a great product and the results are great, but the tax benefits are not as fantastic as usually stated.
Can you tell me what direction taxes are going over the long-term?
If you’re like most people and most experts, you think they’ll go up. In which case, if you’re successful in growing your nest-egg in a tax deferred account, you’ll only pay higher taxes on a larger number.
I like paying my taxes now, while I know what they are.
In addition, tax-deferred retirement plans are government-sponsored. That means the government controls them and can change the rules and penalties anytime they want. They are considering changes right now.
Bank On Yourself is about taking back control of your financial future from the government, banks and your employer.
Furthermore, saving in a Bank On Yourself plan comes with 18 major advantages and guarantees. I encourage you to compare your favorite strategy to Bank On Yourself. If you can match or beat Bank On Yourself, there’s a $100,000 cash reward waiting for you!
Pam,
can you elaborate on the dpwl vs universal index(i think this is what douglas andrews recommends) and why the dpwl is the better type of policy…..tried to find info in your book that i bought….just steer me to the pg.or blog reference if you have already commented
..trying to get educated!..thx!…..Matt
No other life insurance product comes with as many guarantees as whole life. I think you will find this fair and balanced comparison of whole life against universal life very informative.
In addition, here are 4 reasons why indexed universal life is not an appropriate product when you want guaranteed, predictable growth, and/or plan to use the policy for the purposes of financing.
Hope this helps.
Pamela — what about the fine print of these policies. They have admin fees ~4% and loan interest rates ~6% which is great if you realize that you are effectively borrowing against a 500% or more death benefit. The IRR ends up being 3% if purchased today, right? Most of the magic is in the contribution uptick, not the earning uptick, so it’s just a machine to allow you to put more into it, not to get more return out of what you put in. If you put $1000 in the S&P 500 index in an IRA on January 1, 1989 and withdrew it upon retirement on December 31, 2009 (assuming you’re over 59 1/2) you’d have around $1093 which would then be taxable. If you put in $1000 a year, you’d have the 20,000 of contribution, but you’d also have something then like $21,000 more earned pretax vs. about $7000 more earned at 3% tax free in nonpar, nondirect recognition whole life policy. The devil’s in the details, but please call a spade a shovel and acknowledge the fees and actual return rates.
I’m guessing you’re an insurance agent. Like many agents, you don’t understand what a paid-up additions rider is or how it works. It doesn’t just let you put more into it. Your cash value grows much faster, and you have a much higher internal rate of return.
Please read chapters 4 and 5 of my best-selling book for a better understanding of this. Also, check out this blog post I wrote on what the rate of return actually is on a Bank On Yourself designed policy.
Pamela — thanks for responding. You are making assumptions and generalizations with not much actual data to back it up. You claim 8%, but don’t quote actual data.
I merely did some illustrations and looked at competitive data with an agent of a top Fortune 500 mutual carrier which has the PUAR and NDR. I do have an MBA, but please don’t hold that against me.
I also made a mistake on the projection above since it was late at night. My bad and I apologize if it confused some people. $1000 invested in the S&P in a IRA-like account for the 20 year time frame from 89 to 09 would have grown to $5427, not $1093 — even with all the swings in the market — equating to 9.27% compounded. Yes there is tax you’d take out at the end for both S&P examples.So after 35% tax hit from an IRA withdrawal, the $5427 would be around $3528 or reduce it to around 6.51% compounded. I’m not going to do a rate for the $1000/yr for 20 years but the uptick after 20 years is $5427 before-tax and $4666 after tax vs. the base 20K contribution, It’s a tad more for the same reason the PUAR increases things in your policy. But don’t claim the contribution as a return, that is, don’t claim the $25,427 as a return. The best insurance carriers don’t and they’re doing fine.
The base policies for topmost mutual whole life carriers are themselves quoting 3 to 4% IRR in recent sales literature on the same 20 year time period on a $250K policy, The PUAR accumulates more through contribution, plus slightly more compounding on that at the same rate, but since there’s more to compound earlier, it grows faster. It’s all good. Just not as good as you’re claiming. Somewhere between Ramsey and BOY resides the truth on these very special policies.
Safety and death benefit works for me. Getting a 1.5 or 2.5% loan using insurance as collateral works for me also. As does the tax deduction on that interest.
So I think you can beat BOY with the S&P during the last 20 years by a smidgen. I don’t want the $100K, but I’d like a clear illustration for the last 20 years.
I’d love to be proven wrong, by the way. I, like most on this site, would love for this to work the way you claim. 8% tax free is just “too good to be true”
Hi George,
I appreciate both your skepticism and your attempts to get to the bottom of this, so to speak.
Let’s look at it this way. As you correctly stated, base policies for most top mutual whole life carriers show a 3 to 4% internal rate of return (IRR) currently.
Say that advisor who sold you a policy designed it the traditional way – your premium is ALL base premium (nothing going into the Paid-Up Additions Rider), and let’s say your premium is $500/month.
Now let’s compare that against a policy with the same premium, but this one was designed by a Bank On Yourself Authorized Advisor.
Your total monthly premium is still $500/month; HOWEVER 60% of that – $300 per month – is going into that wonderful Paid-Up Additions Rider. 94% of that $300 goes to work for you immediately (it’s buying you additional fully paid up coverage or death benefit at the lowest cost, which then accumulates its own cash value and dividends).
Now I don’t have an MBA (but please don’t hold that against me either
), and I’m not great at math. But it seems pretty obvious (to me anyway) that if most of 60% of your monthly premium is now growing in the most efficient way possible in a whole life policy, the 3-4% IRR you’d get in an all base premium policy could easily be increased by at least 50%. Which means your IRR is easily going to be 4.5% to 5.8% – even though you’re putting in the exact same total amount of $500 per month.
And, since it’s possible to access that equity without tax consequences under current tax law, just as I originally stated, someone in a 35% tax bracket would have to get as much as almost 8% in a taxable account in order to net what they would be getting in a properly structured Bank On Yourself-type policy. You’re welcome to check my math, however, you’ve already admitted several mistakes in your own calculations, so I’m not going to put a lot of faith in any new ones you come up with.
Some companies’ software can calculate the IRR, based on various factors, such as if there’s a Paid-Up Additions Rider and/or if you’re using the policy to finance things, etc. I have seen the calculations, but I do not get into posting illustrations and IRR calculations for many reasons, including the fact that I’m not a licensed insurance agent, so I’m not supposed to.
I can tell you are “sold” on several of the benefits of this product/method, but if you think Bank On Yourself and my $100,000 Challenge is about ‘rate of return” and being able to beat the S&P 500, you’ve missed maybe 90% of the point of this whole concept. So, please take the Challenge, read my book and this website and then you’ll know at least 15 reasons why Bank On Yourself makes the best financial foundation of any financial product or strategy.
Actually, again I made a mistake. It was $6870 return after 20 years @ $100/yr and $26870.as the combined contribution which equates to the $4666 after 35% tax reduction. This forum is a rough way to get a point across. Whether the math is absolutely correct, I hope you appreciate my attempt to differentiate between compounded growth of a fixed rate, a varying rate with and without taxes of a passive amount like $1000 vs. a dollar-cost averaged $1000 over 20 years and backing out the return. PUAR does not add net compounded rate, it adds contribution and time for compounding on that additional contribution.. Gotta go. Best of luck with your policies folks. Ask your agent to lay everything out in detail and provide competitive data like women in white on TV does for auto insurance. .
Well I don’t know about you, but my investments go for over ten years. Can you show us the rate of return for the last 20 yrs, 30 yrs, etc. in the stock market? Your example is as week as the example the gold companies use, they just don’t tell you that you will be taxed 35% when you sell. And how dose your “insurance” gain interest? It sounds like a Madoff scam, the more people you get in the more you can pay out, as long as everyone doesn’t pull there money out at once. So YOU the insurance company doesn’t invest in the stock market? Really?? Sorry, basic facts, the stock market goes up 12% per year on avg, just look for yourself. Next fact don’t “play” the market like a craps table in Vegas, you will loose your money I promise you will. Fact 3 if the stock market completely crashes, that is apart of your sales pitch, everything will cost so much it won’t matter where you have your money. Only then will the gold barons be right. If you truly want to bank on yourself then invest in your companies 401k (at least up to what they match) then when you want to take a loan “borrow” from your 401k. The interest you pay will be to YOUR 401k not to a bank or a insurance company, and the fee is only $150.00 ONE TIME at the point of set up. If you are hurting, like I am, learn this lesson well, “only the banks and insurance companies can win when you borrow from them”. I have learned my lesson. If I don’t have cash I don’t NEED it. Just my 2 cents.
Jim
Your numbers are way out of date. They also disregard investor behavior and costs. And comparing something that’s existed for hundreds of years to a “Madoff scam” is a stretch, to say the least.
Obviously you don’t have clue about the hidden costs and pitfalls of investing in a 401k.
And you haven’t read my book or done your research, or you’d know that the interest you pay on policy loans ends up back in your policy, if you’re using a dividend-paying, non-direct recognition policy.
But I would let yourself get confused by these facts.
Much too much BS and no facts. Show me the facts!!!!!!!!!!!!!!!!!!!!!
If you’re too lazy to click on the links in this post that lead you to the proof, we can’t help you!!!!!!!!!!!!!!!
To Tob Nance and Judith Bisso above…
“The highest form of ignorance is to reject something you know nothing about.”
– Dr. Wayne W. Dyer
Over time, the total return on stocks has exceeded that of any other class of asset. Which compares the total returns to stocks, long- and short-term government bonds, gold, and commodities (measured by the Consumer Price Index, or CPI.). One dollar invested in stocks in 1802 would have grown to $8.8 million in 2003, in bonds to $16,064, in treasury bills to $4,575, and in gold to $19.75. The CPI has risen by a factor of 14.22, almost all of it after World War II.
from Jeremy J. Siegel is the Russell E. Palmer Professor of Finance at the University of Pennsylvania’s Wharton School.
And as far as a 401k goes I can only speak for myself, in the last 14 years I have invested 6% of my income and been matched 50% by my employer. I have gone over the numbers and for some reason I keep making money. I have read your reasons why not to invest in a 401k but why would you give away money your employer is willing to match? Maybe I am in the only good 401k out there.
And according to the US tax code, selling gold is considered a collectible and because of that you will incur a 35% tax, that is in the 2009 tax code, I bet it will be in the 2010 code as well.
As far as Dave and Suze go, they are right, you should never use a credit card or buy a car on time. There is NEVER a good reason to, unless you want to give your money away. Only the banks win when you do, been there done that.
I guess I will keep getting confused by the facts, thank you for your time.
Jim
You bring up several interesting points. So interesting, in fact, that I’m going to devote an entire blog post to addressing them – stay tuned.
In the meantime, an article appeared in yesterday’s Wall Street Journal that calls into question the good Professor Siegel’s stats you cited.
Here’s a link to that article, titled, Ten Stock-Market Myths That Just Won’t Die. See Myth #2 for the low-down, but the entire article is well worth reading.
Pam,
Can you give me a feel for what the length of the ’start-up’ period is? I assume that the completion of this period is the point where the cash value has caught up with the contributions made – I’ve read this can be in the range of 5-10 years. I understand this likely varies with the policy, but I just wanted to get a feel for when the snowball effect can give one a warm fuzzy
Wayne
See my response to the post below. And, yes, it could take five or more years for the cash value to equal your premiums paid in. But you don’t have to wait ’til then to use or benefit from it.
I noticed that there was an initial waiting/investment period before you would start to see results. I was just wondering how long that initial period is? I invest ten percent of my pay to my employers 401k plan. They only match 3 percent up to my 6 percent investment. The other 4 percent is not matched. Would this be a better investment for me? I’m 42 years old now, so I have a few years left before I retire and would like to see alittle more movement towards the positive with my money.
You can use the policy as a powerful financial management tool right from the start. The growth is slow in the first few years, but picks up steam and then turns into a screamer – just when you need it most (retirement).
The description of your own situation is very similar to that of a Bank On Yourself client I am interviewing next week for this blog. He will explain why he cut back his 401(k) contribution to what his employer matches – and why he’s considering stopping funding it altogether.
He has already started seven Bank On Yourself-type policies and is paying $60,000 a year into them.
Stay tuned for what promises to be a very stimulating interview!
[...] show exactly how these policies are different in my book, and I’ve even put some of my own policy statements online that PROVE these policies are dramatically different from the kind that Suze Orman, Dave Ramsey and [...]
As a Dave Ramsey trained Financial Coach, for now I think I have to stick with the buy-term-invest-the-difference approach recommended by Dave Ramsey, Ms. Orman, and pretty much every well known financial “guru” ever.
I will look into this, so I don’t want to seem too dismissive. One question I have though is, why would Dave, or any other expert continue to dismiss concepts like this if they actually were better? Do you think they just are too lazy to look into it, too proud to admit something new is better, or they actually just want people to end up in a worse financial situation than they otherwise could? None of these seems likely to be true of EVERY famous expert, so perhaps there’s a bit of “too good to be true” about something? Just my initial thoughts.
I am glad to hear you say “you will look into this.” I have PROVED on my website and in my book how Bank On Yourself-type whole life policies are different from the policies Dave, Suze and the others talk about, using direct quotes from their books, and comparing them against actual policy statements.
The differences are clear and profound.
I have also explained the main reasons why Dave, Suze, the other experts and MOST financial advisors have never heard of this. I have also said it’s not their fault they received no education or training on this, because very few companies offer it, and it’s not even covered in the training programs advisors and insurance agents have to take to get licensed.
It’s also not covered in the training advisors take to get their advanced designations, such as CLU, ChFC, etc.
I’ve seen many 35-year plus veterans of the industry say they never heard of it. The conclusion they draw is that that must mean it doesn’t exist.
That is why historian, Daniel Boorstin, said, “the greatest obstacle to discovering the shape of the earth, the continents, and the oceans was not ignorance – it was the illusion of knowledge.”
I do know that Dave Ramsey was asked about this at least once on his radio show, and he responded by dismissing it out-of-hand by saying it’s just another way insurance agents have concocted to separate people from their money and earn big commissions.
He did NOT research it before making that comment and drawing that conclusion. It’s his stock reply when asked about anything that includes the words “whole life.”
The same has been true – so far – about Suze Orman and the others.
So, I will leave you to draw your own conclusions about this and what their motivations are.
As far as Bank On Yourself being “too good to be true” – whole life policies remain an asset class that has increased in value every year for over 100 years. All growth is locked in and does not vanish in a market crash.
I challenge you to say that about the other ways of saving and investing recommended by Dave, Suze and the others.
And I welcome you to do your due diligence – if you really keep an open mind, it will change you forever.