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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33 Responses to “Suze Orman and Dave Ramsey: Let’s debate!”
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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?
Is there an age limit? I’m nearing 70 but still working.
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.
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.