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 financial representative

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

In Kitces’ review of Bank On Yourself, he focused on using something other than dividend-paying whole life insurance as collateral for your life insurance policy loans.

Michael Kitces thinks you can do “banking on yourself” with some form of universal life insurance.

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Most of the references and examples in Kitces’ review of Bank On Yourself assume you’re using indexed universal life (IUL)—also called equity-indexed universal life (EIUL)—for Bank On Yourself. But now you’ve got a Cobb salad made with eggplant, not eggs! It just ain’t the same!

Indexed universal life and equity-indexed universal life policies are absolutely not appropriate for the Bank On Yourself concept—especially if you plan to take policy loans. And I never, ever recommend using any form of insurance other than whole life insurance for Bank On Yourself policies. Without whole life as the basis for your strategy, you aren’t really following the Bank On Yourself concept!

Kitces mentions whole life insurance exactly twice in his article, but one of those times, he talks about the “crediting rate” of a “whole life” policy. He should know that “crediting rates” are features of indexed universal life policies—not whole life policies. So even when Kitces thinks he’s talking about whole life insurance, he’s really talking about indexed universal life policies.

I’ve spent hundreds of hours researching IUL and I summarized my findings in an exposé titled 7 Reasons to Be Wary of Indexed Universal Life Insurance.

Whole life insurance has more guarantees than any other type of life insurance policy—and more guarantees than any other financial vehicle. Whole life is the only form of life insurance recommended for the Bank On Yourself concept. No exceptions!

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2. A Bank On Yourself policy must have a “non-direct recognition” policy loan feature

This, too, is an essential requirement, but Kitces only mentions non-direct recognition in passing, as if it weren’t important. This tells you he is not talking about the Bank On Yourself concept, even though he claims to be.

I want you to understand why this odd term, non-direct recognition policy loan, is so important. I’m going to make several references to my most recent best-selling book, The Bank On Yourself Revolution.

With a non-direct recognition policy loan, “the insurance company doesn’t recognize that you took a policy loan when they dole out the dividends. If you don’t have a non-direct recognition loan, they’ll pay you a different dividend on that portion of your cash value that you borrowed against.” (The Bank On Yourself Revolution, page 160)

With a non-direct recognition loan, the insurance company will “credit you the exact same dividend even when you’ve taken a loan on your policy. That lets you use your money and still have it growing for you as though you never touched it.” (The Bank On Yourself Revolution, page 256)

Note: You don’t even need to buy my book to understand how the Bank On Yourself concept works. You can download my FREE Report, 5 Simple Steps to Bypass Wall Street, Fire Your Banker, and Take Control of Your Financial Future, right here.

Kitces also shows his lack of understanding when he says, “Trying to Bank On Yourself doesn’t work very well when ultimately the loan interest isn’t actually something you pay back to yourself; it simply repays the life insurance company.”

Here’s how I explain this in The Bank On Yourself Revolution, on pages 158 and 159:

When you take a policy loan, the money doesn’t actually come from your policy. It comes out of the company’s general fund because all the cash value of all the policies is pooled together. Your policy’s cash value and death benefit are used as collateral for the loan.

As you pay back a loan, it works the same way in the opposite direction. The payments you make don’t go back into your policy. They go back into the company’s general fund.

The company applies your payments of principal to reduce your loan balance. Then at the end of each year, the company calculates their income from all sources, including the loan interest you and others paid, and they calculate the company’s expenses and the death claims they paid out.

If that yields better results than the worst-case scenario they projected, they pay a dividend to all the policy owners. So you end up getting the benefit of the interest you pay through a combination of guaranteed annual increases plus any dividends the company pays.

That means both the principal and interest you pay can ultimately end up in your Bank On Yourself policy for you to use again—for a car, vacation, business equipment, a college education, retirement, or whatever you want.

And here’s a typical example that demonstrates how the interest you pay when you take a policy loan from a Bank On Yourself-type policy benefits you, as policy owner. This is from page 159 of my book:

If your policy is from one of the companies that offer this [non-direct recognition policy loan] feature, when you pay your loans back at the exact same interest rate the company charges, you’ll end up with exactly the same cash value as you would have if you didn’t use your plan to finance purchases.

For example, suppose your policy is projected to have $400,000 of cash value in Year 25. And let’s say you decided to borrow $30,000 in the fifth year to buy a car, then you pay it back at the interest rate the company charges over the next five years.

Then you repeat that cycle three more times. At the end of twenty-five years, your cash value would still be $400,000—the same as if you hadn’t used it to finance anything.

See for yourself how Michael Kitces missed the boat about Bank On Yourself-style policy loans, by looking at the above example of using the right kind of life insurance policy loans to purchase a series of automobiles: You end up with the same cash value after paying interest on your policy loans as if you had never borrowed a dime.

So who benefited from the interest you paid to the life insurance company, if not you?

A life insurance loan is the only financial strategy vehicle I know of that provides uninterrupted growth of your money while you use it—if you’re using as collateral a life insurance policy with a non-direct recognition policy loan feature!

3. The policy must incorporate a flexible policy design, to help keep up with your potentially changing financial situation

Michael Kitces talks again and again about how policies lapse and incur huge tax obligations.

Well, that might happen—but it’s much less likely to happen if you don’t ignore the last three requirements of Bank On Yourself life insurance, beginning with flexible policy design.

Life insurance policies recommended by the Bank On Yourself Professionals include a flexible Paid-Up Additions Rider (PUAR). Premium dollars used to purchase paid-up additions make your cash value grow much faster than a policy that doesn’t include this rider, especially in the early years of the policy.

And at least 50 percent of your premium in a Bank On Yourself-type policy will typically be directed into this rider.

Some companies that offer a paid-up additions rider don’t give you much flexibility in paying for it. Bank On Yourself Professionals prefer companies that allow you to pay a portion of your PUAR premium when and how you want, and allow you to make partial payments or skip payments and make up for them in the future!

Some companies allow you to even withdraw some or all of your paid-up additions and put them back in later.

And with the life insurance companies recommended by Bank On Yourself Professionals, PUAR premiums are optional! If you can’t pay your PUAR premium, you don’t have to. Your life insurance policy remains in force, and if you wish to catch up later and purchase some of the paid-up additions you didn’t buy when things were tight, you can do that.

Policy owners who have loans against their Bank On Yourself-type policies can use this flexibility to help keep their policies from lapsing.

And it’s important to realize that simply paying the interest due on your loan each year will help prevent your policy from lapsing.

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4. To truly be banking on yourself, you, the policy owner, must be an “honest banker”

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In his review of Bank On Yourself, Michael Kitces doesn’t seem to get that.

Again and again he implies you will not repay your loan, which means, of course, that tax consequences are inevitable.

Kitces uses examples of policy owners taking loans and never paying them back, apparently to scare you into never making the “mistake” of taking a life insurance policy loan.

That’s the kind of logic that says, “Never borrow money to buy a home for your family, because you’ll lose your home when you don’t pay back your loan.”

As I explain on the Bank On Yourself website, if you borrow money from a bank and don’t pay it back, you’re a thief. You’re stealing from the bank.

If you have a life insurance policy loan—which is ultimately like a loan from yourself—and you don’t pay it back, you’re still a thief. Only this time, you’re stealing from yourself, which is even dumber.

If you’re not an honest banker—if you ignore the importance of paying off your life insurance loan—you’re shooting yourself in the foot.

If you’re taking loans to fund your retirement, you do not generally expect to pay them back. However, you will see in the next section how you can avoid having your policy lapse at that point.

5. You must work with a Professional who truly understands the Bank On Yourself concept and who will coach you on how to use your policy through the years to maximize the growth, minimize the taxes you’ll pay, and help make sure your policy doesn’t lapse

A Bank On Yourself Professional will offer you ongoing coaching and support and show you the most effective ways to use your policy. He or she will monitor your policy loans with you and offer suggestions on modifying your policy, if necessary, to be sure it does not lapse.

In case of prolonged financial hardship, for example, your Bank On Yourself Professional may suggest making your policy a “reduced paid up” policy. This means no more premiums will ever be due and the death benefit will be reduced. This can be done at any time after the seventh year of a policy.

Kitces doesn’t talk about this—even in an article he wrote about life insurance loan rescue strategies—so it’s possible he is unaware of this helpful feature, which can be a lifesaver.

If unpaid policy loan interest is increasing your loan balance to the point where the policy could lapse, you will also have at least two other very helpful options Michael Kitces failed to mention in his review of Bank On Yourself:

  1. If you convert your policy to a reduced paid up policy, the amount of money you had been sending to the insurance company each month to pay your premium can now be used to repay the loan. This can be extremely effective in taming a life insurance policy loan that’s gotten out of hand.
  2. You can withdraw dividends from your policy—tax free—an amount up to your cost basis (generally defined as the total premiums you’ve paid in, minus any money you’ve already withdrawn—not borrowed) from your policy, and use that to pay down the loan. This will help lower the interest costs and make the loan payments more manageable.

These are some of the many options that your Bank On Yourself Professional can discuss with you, should the need arise. As you can see, there is a lot of flexibility in avoiding tax consequences due to a lapsed policy when banking on yourself that Michael Kitces seems unaware of.

If you’d like to find out what your guaranteed, bottom-line numbers and results could be if you added the Bank On Yourself concept to your plan, request a free, no-obligation Analysis here.

You’ll also see how much your lifetime wealth could increase, simply by using a Bank On Yourself policy to pay for major purchases, rather than by financing, leasing, or even directly paying cash for them. And you’ll get a referral to one of the Professionals. So request your free Analysis now.


You Can Take This to the Bank!

Life insurance policy loans—if they’re done the Bank On Yourself way—are the eighth wonder of the world. But it’s important to keep in mind the five key requirements I explained above.

In the next article in this series, “What Kitces Missed About Life Insurance Loans, I’ll show you why you actually finance everything you buy, and why accessing capital for major purchases or emergencies through Bank On Yourself-type policy loans beats any other type of financing you can think of—something Michael Kitces missed entirely!


  1. One aspect of our BOY policy that isn’t often mentioned, but that is extremely important to maximizing the building of cash value at the fastest rate possible, is the PUAR… and what I’ve learned since acquiring and utilizing our policy is that it is actually advantageous to add cash to the PUAR, on top of premiums, up to a certain maximum which your advisor can determine for you in order to avoid the policy becoming a modified endowment contract. Put another way, I’ve learned that paying into my policy in three ways every month – 1) base premium, 2) PUAR addition, and 3) repay of any outstanding loans actually can build cash value even faster while still paying back loans in the process. This is most effective in ratcheting up saving within the policy in the early years. This is valuable information that I would have never figured out on my own or through some more traditional wealth building instrument.

  2. This strategy of becoming your own bank(er) with dividend paying whole life insurance with the parameters you outlined in this post is undoubtedly the most dynamic financing strategy going! If you do no better than to “break even” on the policy loan interest and the dividend interest, you still wind up with a virtually interest-free loan when you pay it back. That benefit alone can add $900K to a person’s “bottom line” over their lifetime! If one were to start at age 25 and self finance with this method. Finance charges with standard bank financing will cost around 34% of your after tax earnings! Do the math! Banking on yourself with dividend paying WL saves TONS of $$! And if you paid yourself that additional interest you could add $2M to your bottom line over your lifetime!

    Unfortunately I never learned about this until a couple years ago. But now that my wife and I are educated…we’ve bought new furniture financing ourselves with our “private, personal bank” and wound up making $400 profit even after paying the policy interest on our loan! More like $800 if you count the 25% interest we did NOT pay financing through the furniture store! I only wish I had started this when I was in my 20s – or even 30s!

  3. I have found that using Bank on Yourself has allowed me to pay off my auto loans so that I now get the money returned rather than giving it to someone else. It makes so much sense. I have also been able to help fund a new business that will reap me rewards in the future and help pay down my Bank on Yourself loan quickly… all so I can reuse the money again later. What a blessing to find this gem of a deal! And I don’t have the anxiety of whether I can pay back the loan on time or not. I can adjust my monthly payments to fit when and if I can pay it. It makes it simple to pay back quicker or slower depending on the finances at the time.

    • Oh wow. I have more to learn. This sounds great. I just purchased a new car. Wished I knew this one before I purchased it. But, again, never too old to learn. This is great. And I thought getting old was going to be tough.

  4. While it does require one to be very financially disciplined and committed when funding the policy, it is more than worth it. I’ve been using the BOY method for almost 5 years, and I have consider it being not only the best financial decision I’ve made, but one of my best LIFE decisions I’ve made.

    • You are so right about that Anthony. I have stopped going out to eat and now prepared my meals at home. It has help me to stay on track to be able to keep up my payments, no my investments in myself and future.

  5. It is very useful that the Bank on Yourself (BOY) approach is also available in Canada through accredited representatives. I am in the process of getting my evaluation completed and I am looking forward to learning about the best fit plan for me. I have been investing since the early 1980’s and I had never heard of this approach. I had purchased the Gibbons program (no longer available) which promoted dropping whole life in exchange for term which led me away from traditional whole life. I like the approach in BOY based on what I know. My outstanding questions relate to accessing the cash if needed, but my advisor should be able to help me with this when my plan is developed. Thank you very much for working through all the different 400+ options and finding this one.

  6. After I had My BOY policy for a few years I was laid off. To make things easier on Me I took out a loan on my policy to pay off my car and small loan I had. Even though I didn’t have a Job on Income. Try that at a regular Bank. Now years later using loane to help put my daughter through collage. No hassles or problems.

  7. I had the chance to interact with one of the advisors, simply amazing.
    Excelente advices and guidance.

  8. Ditto to all of the above. It is nice to see all of these folks go trough the process, from thinking this must be too good to be true and then finding out it’s not!!!!

  9. I’m clearer on the “non-direct recognition” aspect and the PUAR and how they effect the growth of the product , cash value and loan repayment features. Thanks.

  10. Thanks for this clarification that your loan does not affect the overall amount. It’s a good system that allows you to change the parameters if you need to.

  11. I’m fairly new with my policies, but I plan on using the loan feature to pay for some existing auto and student loans. Its a relief not to have to go to a bank and apply. I can just contact my advisor and have the funds I need In short time.
    I love the security and piece of mind knowing my investments are growing. Just wish I had found this system when I was younger and had the wisdom to take advantage of it. I know I would be much better off financially. Thank you

  12. Nothing like Bank on Yourself! I have 4 policies and over the last 8 yrs, I have borrowed $297,000 on them to finance everything from vacations, Photo Volteic System, automobiles, loaning money to my husband’s business and even paying premiums. I have paid back all but $50,000 and guess where all that cash went? Right back into my policies.My cash value climbs right back up with every payment I make and I still got paid the full guaranteed interest rate.

    One very nice thing about the loans I took out? My husbands business was closed for 6 months back in 2011 and I had no income coming in from him but still had loans to pay…or did I? Nope, I decide when to pay them back …on my terms…so I postponed paying the loans back for the 6 months and never felt pressure, no late payment fees.

    One more beautiful thing? Currently my cash value total of all of my policies is $297,204.79 and I could borrow $290,926.10 (98%!!!) tomorrow by just requesting it…and still have $1.5 million in death benefit minus the $290, 296.10.

    My only regret? I waited till I was 57 when I started. Had I known about it earlier, I would have diverted my whole 401K into it. But better late than never. I am truly reaping the rewards…and in a few years, I get to collect “retirement” of over $2000/month tax free. How about ‘dem apples?? Thank you, Pamela. Your book changed and saved my life!

    • Wow Annette, that’s awesome! I’m 54 and have been worried whether I can have enough to retire when I’m 68. We will meet with out advisor next week for the first time but already what you’ve said is real encouraging. I’m very anxious to know how I can move my 401(k) fund over.

      • Mike,
        Good luck meeting with your advisor. You have definitely made a choice in the right direction. When I committted to my first Bank on Yourself policy, I stopped all the money going into my 401K to the new policy except for my company match. I wish I had done it a few years earlier in 2008 when I lost more than $60,000 in my 401K when the economy tanked. But the blessing is that it made me pay attention when I heard Pam’s advertisement on the radio. At first it felt too good to be true, but I spent 4 months straight studying it and asking tons of questions and finally made the plunge. I wish you the best!

  13. This article MAY have cleared up an issue for me about the BOY policies, although perhaps not. This article includes an example stating “if the projected value of the policy in year 25 is $400,000 and you decide to take out a loan of $30,000 in year 5, …”. The question I have is whether you can take out a loan at any time for MORE than the current cash value? This article implies that you can, while when I have spoke with the BOY advisor, they were stating that you need to wait until the cash value accumulated more than what the loan would be.

    It would be advantageous to state in writing what the loan limits are in these articles. In the “Frequently Asked Questions” link, it does mention (if you follow through enough subsequent links) that you can borrow 85-90% of the cash value and that a “a properly-designed Bank On Yourself-type policy will have cash value in the first month”. Perhaps more examples of how to properly design a BOY would be useful in the literature.

    • Your Bank On Yourself Professional is correct. You cannot take out a loan over and above 85-90% of the current cash value. The only way to access 100% of your cash value is to surrender your policy – and you want to avoid that at all costs!

      The basics of Bank On Yourself policy design are covered here. But since each policy is custom tailored to the client, it’s the job of a Bank On Yourself Professional is to design the policy, then coach you through the years on how to use your policy in a way that’s most advantageous to you.

  14. I took a policy loan to cover an unexpected medical procedure. I look at this as an emergency fund that I can repay as funds allow. This has been a big help.

  15. At age 72 I found the perfect financial vehicle, participation-dividend paying whole life insurance. I’ve used my policy to pay off debt. After this loan is paid off I will take another loan to pay off my car and another debt. Getting a loan is very simple. A phone call and three business days its in my bank account for me to use. In the present day economic environment the only way to get ahead is putting you hard earned money into a whole life policy where your money is safe, you are in control of it, your money has growth, liquidity, you can preserve your wealth, pass it on to your beneficiaries, all while you are living.. Can’t think of a better place to put your money ! I’m making it my ambition to inform everyone I know about this concept. Thank you Pamela for the blogs. I use them when informing people about this strategy. Rod Willerton


  16. I’m intrigued by the BOY program and need to determine if I need to have the policy on a younger family member? I’m 55.

  17. I have been a B.O.Y. policy holder for 3 years now. A few months ago I decided to take out my first loan to buy a Tesla electric car ($80,000).

    Tesla has an agreement with Alliant Credit Union offering new car loans with 1.9% interest.

    I called my B.O.Y. advisor {Bill Williams} about borrowing money from my life insurance policy to buy the Tesla car.
    Bill told me that I would be way better off getting the loan @ 1.9% from the credit union than borrowing the money from my life insurance policy @ 5%.

    You may want to share with your readers not to assume that borrowing from their life insurance policy is always the best option. With historic low interest rates, it may actually be better to borrow money from a traditional lender. Your readers need to consult their B.O.Y. advisor to see what the best option is.

    • Great point, Anthony, and I do point this out in both my book and on my website: If you can truly get a lower rate than the company charges, then you may choose to take advantage of that and put the interest you save into your Bank On Yourself policy. But there are two important caveats:

      Caveat 1: You should ONLY do this if you have enough cash value in your policy to transfer the loan to the policy if you hit a rough patch financially. Then you would be in control of the repayment schedule, and won’t have to worry about collection calls, repossession or having your credit report ruined.

      Caveat 2: In many – if not most – cases, those low interest rate offers are NOT what they appear to be. There’s no such thing as a free lunch! The low rate is usually instead of giving you a discount or rebate. So, always bargain hard to get an amount equal to the interest savings knocked off the price of the item.

  18. PUARs are the nitrous oxide in the BOY engine. In a whole life insurance policy your earnings and dividends each year are based in part upon how much insurance your premiums have paid off in you policy. A PUAR allows you to use those earnings and dividends to purchase additional paid-up insurance beyond that from your set premium, thus creating a larger pot to base your next years earnings and dividends from, allowing you to purchase even more paid-up insurance, and so on, and so on. You can see how this can snowball after you get through those first couple years of premiums. My wife and I had experience with whole life policies with PUARs we took out when we first married, so we already knew this functioned worked when we finally came across the BOY system. Our BOY just utilizes this concept in a “supercharged” method to maximize their potential. It’s worked for us for over nine years now–as they say the proof is in the pudding!

  19. My BOY advisors that introduced me to BOY were some of the most caring and extraordinary people I ever met. They were a husband/wife team named Stuart and Erna Kastner. They were way beyond the ordinary in terms of financial advisors. They took an intense interest in my well being, my finances and my future. They met with me numerous times at my office to help me understand what BOY was all about and how it would help me. They made extensive binders with information for me to review so that I could understand the complexities of BOY. They walked me through every step of the procedure to set it up, making sure I understood it and even walked me through taking out my first loan. They advised me on what to do with other aspects of my finances and wanted the best for me and my family and kept after me to make sure I got the policies set up and used. They were truly caring and responsible advisors, the likes of which I have never met before or since. Unfortunately, the husband, Stuart, of this great pair passed away recently. I will always remember his caring, his expertise and the degree of responsibility he took to help me. Stuart and Erna went way beyond what would be expected from an advisor. I have used the BOY policies numerous times to finance equipment and real estate purchases and rehabs and from their help, they set me up to be in a much, much better and secure financial position. I will always remember this couple and the excellent example they set of loving and caring people and teachers. In the book, BOY, it talks about this aspect of caring from BOY advisors and I must say that Stuart and Erna exemplified this to the nth degree.

  20. I’m building cash value in my 1st policy. I will have the money to borrow for my next car, and I can walk into the dealership with cash so I can negotiate the best deal, truly a win-win!

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