A review of my book, Bank On Yourself, in the December 2010 issue of the American Association of Individual Investors (AAII) Newsletter declared that the concept is “too good to be true.”
The reason given was, “A life insurance policy loan is not truly a loan. Rather, it is an advance that the insurer must eventually pay out. Worse yet… policy loans can erode a life insurance policy over time.” It also pointed to “potential tax liabilities.”
This review brought to mind one of my favorite quotes…
If you’re looking for an excuse, any one will do.”
– Dan Kennedy
So I wrote the editor and explained there was some misinformation in the review, and that I would like an opportunity to correct the record, pointing out that their motto is “Unbiased Investment Education.”
The editor told me to let him know what I think is incorrect, and he “will take a look at it.” I suspected he was just “humoring me,” but gave him the benefit of the doubt. However, when I submitted my rebuttal, he replied that they would not publish it because “there are no factual corrections to be made.”
I informed AAII I would be publishing my rebuttal on this website, and let YOU decide who is taking things out of context, committing sins of omission, and twisting the “facts”… and who is being fair and unbiased. We’ll pick three of the most interesting, insightful and/or humorous comments made on this blog and award the posters their choice of a $25 gift certificate for a restaurant in your area or a personally autographed copy of my “too good to be true” book.
Besides that, there are several points made in my rebuttal that I have not made elsewhere, so you will find value in reading this (I made it a bit more colorful for your reading pleasure)…
When you take a policy loan, you’re actually taking a loan against your cash value and using your death benefit as collateral for the loan. Should the policy owner die with a loan outstanding, it will be deducted from the death benefit, along with any interest that has accrued.
So, in essence, an unpaid policy loan would be an advance against your death benefit, which in most cases will be far greater than your cash value. With any other financial product, you wouldn’t even have a death benefit larger than your equity to use as collateral.
And what most people (and even most financial representatives and experts) don’t know is that in a dividend-paying whole life policy, both your cash value AND your death benefit grow exponentially, and the growth is both predictable and guaranteed.
Here’s an eye-opening personal example of how this works:
I started a new policy designed to maximize the power of the Bank On Yourself concept a little over four years ago. The death benefit (known as the “face amount”) at that time was $605,000.
Just four years later, the death benefit had grown to $1,104,332 – an increase of over 82%.
One and a half years ago, with almost $125,000 of cash value in the policy, I took a $100,000 policy loan to expand my business. At the time, all my business-owner colleagues were crying on my shoulder about how their bank wouldn’t give them a penny – even those who had perfect credit and long-time relationships with their bankers. They were astonished to discover how I got access to capital by answering just one question: How much do you want?
I am in the process of paying back that $100,000 policy loan now. I set my own payback schedule, and I can reduce or skip payments if and when I need to. Try doing that when you borrow from a bank, finance or credit card company!
Suppose I passed away with part or all of that loan unpaid?
My husband would get nearly $1 million, income-tax free. That’s almost $400,000 more than the original death benefit was four years ago! And it’s ten times the current equity remaining in the policy beyond the outstanding loan balance!
Meanwhile, I used those funds to grow my business, and I’ve already gotten close to a 100% return on that investment in my business.
So do you think it bothers my husband that if I die before I finish repaying the loan, he’ll “only” get $400,000 more than the original death benefit, rather than $500,000 more? Or that he’ll “only” get ten times the current cash value?
And can you tell me any other product or strategy that could accomplish anything even close to this result?
Note to Bank On Yourself Blog readers: AAII’s response to this part of my rebuttal was that my statements “point out that the policy can be adversely affected by outstanding loans.” And, thus, “no factual corrections need to be made in our magazine.”
Okay, let’s assume AAII didn’t take this wildly out of context. Their statement that a policy loan “is an advance that the insurer must eventually pay out” is an error of fact. If they already advanced it to you, they don’t have to pay it out again! (Duh!) One problem is that four different people on my team read this statement and each interpreted it a different way. So it wouldn’t surprise me if you do the same.
Additional benefits of the Bank On Yourself method include:
As mentioned in the AAII review, you continue to receive the exact same annual guaranteed cash value increase PLUS the exact same dividend you would receive if you had never borrowed a penny. This let’s you use your money and still have it working for you. And you don’t have to sell your investments to take advantage of this feature.
Please tell me where else can you get this advantage?
This is true for “non-direct recognition” policies, which don’t “recognize” you have taken a loan when crediting dividends. The policies recommended by the Bank On Yourself Professionals meet the requirements that maximize the power of the concept. These financial representatives also have advanced training in how to structure policies to maximize the growth of your cash value and minimize the taxes. To get a referral to a Professional, simply request a free Analysis that will show you how much your financial picture could improve if you added Bank On Yourself to your financial plan.You do pay interest on policy loans, and the interest rate is typically below commercially available rates. However, as I explain on pages 100-103 of my best-selling book, the interest paid ultimately benefits the policy owner. You will end up with the exact same cash value in your policy if you borrow from your policy and pay it back at the interest rate the company charges as you would if you didn’t use your policy’s equity at all.
The AAII review of my book never even mentions a central part of this concept: It is not about just taking policy loans! It’s about becoming your own source of financing.
If you borrow from a bank and you don’t pay it back, you’re stealing from the bank. If you borrow money from your life insurance policy and don’t pay it back, you’re stealing from yourself. Once people realize this they become very disciplined and even excited about paying their policy loans back.
As noted in the AAII review, there are potential tax consequences to policy loans that are not repaid. A policy that lapses or is surrendered can result in taxes being owed on the gain. As long as you pay the premium and the loan interest, the policy will not lapse.
However, it should be pointed out that defaulting on or renegotiating mortgages or credit card and other debt can result in tax consequences, too. A friend of mine settled $50,000 of credit card debt for 50 cents on the dollar. She got slapped with a tax bill for the $25,000 that was “forgiven.”
Note to Bank On Yourself Blog readers: AAII’s response to this was, “Again, you reiterated what we wrote (about potential tax liabilities).”
Critics of whole life insurance will be surprised to learn that I had $125,000 of cash value in that policy when the policy was only 2-1/2 years old. They might be even more surprised to know that I had tens of thousands of dollars of cash value at the end of the first year.
That’s because policies designed to maximize the power of the Bank On Yourself concept have riders incorporated into them that significantly increase the growth of the cash value. You could have up to 40 times more cash value in your policy in the early years than you would in a traditionally designed policy (the kind most experts and representatives talk about), as explained in Chapters 3-6 of my book. This allows you to use your policy as a powerful financial management tool right from the start.
(Note: No two policies are alike – each is custom tailored to the client’s unique goals and situation. 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 Analysis here, if you haven’t already done so.)
The review ends by saying that “loans, when necessary, should be taken out separately from your portfolio.”
This ignores a basic, but often overlooked principle of economics:
You finance everything you buy! That’s because you either pay interest to use someone else’s money or you give up the interest or investment income you could have earned, had you kept your money invested instead.
The Bank On Yourself concept can beat financing, leasing and even paying cash for things, for the reasons described above.
One final comment on this review: It refers to whole life insurance as a “portfolio,” which implies it’s an investment. It is not and is not subject to the ups and downs of traditional investments. Dividend-paying whole life insurance is an asset that has increased in value every single year for more than 150 years, including during the Great Depression.
The Bank On Yourself method gives you a financial foundation that can help you weather tough times, access to capital when you need it on your terms, it allows you use your money and still have it working for you, AND it lets you grow a nest-egg you can predict and count on.
That is what most of my book is about. I wonder why none of this was even mentioned in this review?
So, is Bank On Yourself “too good to be true”? I hope you’ll decide for yourself with the facts at hand.
Note to Bank On Yourself Blog readers: The AAII says that it stresses “hands-on participation in your financial future through education and understanding,” and that, “our reporting is unbiased and we are not beholden to anyone.”
Coincidentally, an article appeared in the Wall Street Journal 1 this week that noted that AAII surveys its members each week and that “some investors have looked to the AAII survey as a compelling contrarian signal. An ebullient reading often is a clue that the market is due for a fall.” Translation: AAII members tend to move with the herd and buy and sell at the wrong times.
Why am I not surprised? And, given this revelation, I realize we should be concerned if and when AAII endorses Bank On Yourself.
We want to hear from you! And the best comments will win prizes…
Did the AAII review of my book twist things, commit sins of omission, and take facts out of context… or was it fair and unbiased? Speak your mind in the comments box below. We’ll pick three of the most interesting, insightful and/or humorous comments and award the posters their choice of a $25 dining gift certificate or a personally autographed copy of my “too good to be true” best-selling book. (To qualify, you must post your comment in the comment box below by Monday, January 24.)