Bank on Yourself: Three Alternatives to Consider Instead of Taking a Loan on a Whole Life Policy

By | August 19, 2018

The Bank on Yourself Revolution” is a book released in 2014. It was written by author Pam Yellen as a follow-up to her popular book released 5 years earlier simply called “Bank on Yourself.”

The new book has the same themes as the old one. She criticizes Wall Street and banks for their business practices while chastising them for stealing the wealth of the middle class. She slams “financial entertainers” for providing shoddy and generalized investment advice to the public and states this advice is over promising and under delivering. As solution, Yellen encourages her readers to seek the guidance of one of her specially trained “authorized advisor” in order to provide them with guidance on how to design a special type of financial tool that has the ability to allow a person to “spend their way to wealth.”

The concept the authorized advisor will show the reader who follows the advice revolves around a strategy that calls for an individual to store cash in a type of whole life cash value insurance policy created by a mutual life insurance company. The life insurance company who creates the policy will then give the policy owner the ability to take various loans against the equity they build up so that they can “spend their money” while the actual asset “continues to grow” faster than the interest charged against the loan.

The asset continues to grow because the insurance company will continue to pay dividends on the equity that has been borrowed against.

When someone can borrow against an asset at one rate but earn a higher rate of return than what the loan requires, there is the possibility of earning an arbitrage profit.

When a lender gives a loan against an asset with equity, the loan is known as a “collateralized loan” because the asset is held as collateral to pay the loan off if the event the borrower doesn’t pay it off in other ways.. If the owner and the asset/borrower can earn a better rate of return with their asset than the interest rate on that loan they take against it, then it could be argued that a person could spend their money but still be making money with it at the same time.

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The uniqueness of a life insurance contract is that the money borrowed generally does not have to be paid back under a set schedule like most loans do from other lenders. Therefore, not paying the loan back “on time” won’t affect an individuals credit score or cause them to go bankrupt.

I am not an authorized representative of “Bank on Yourself” but understand the idea behind it. Since whole life has contractual minimum guaranteed rate of return, it will never lose money due to market losses. The type of whole life insurance policy she promotes is one that has what is known as a “non-direct participating dividend paying policy” that will allow the policy owner to receive a share of the life insurance company’s surplus earnings even against money that has been loaned against.

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