Whole life Insurance used to decentralize your Banking practices”
Whole life insurance is offered by companies, some of which are over 150 years old. The main attribute of Whole Life Insurance is the cash value. In addition to a portion of your premium being used to pay for the death benefit, a portion goes into a savings account, inside your policy, which accumulates tax free at a compound interest rate determined when you buy your policy, but currently the national average for Mutual life insurance companies is around 4%, with the range being 4-6%. Thus portion of your premium is called cash value.
Important Characteristics of this feature.
Tax Treatment
The United States Taxation Department, the IRS specifically excludes the interest earned from this savings account from taxation, in the tax code.
If you choose a Mutual Insurance Company, it is owned by its policy holders, so at year end all net profit above expenses and taxes are divided amongst the policy holders and paid to them, thus is called a policy dividend.
While stock dividends are considered unearned income and taxed in America, mutual insurance company dividends are considered a “return of premium” and are not taxed.
Policy Loans
You can apply for and be automatically granted a loan, secured by the cash value. borrow against it. The rate of interest is determined at policy outset, and is simple interest, usually between 4-6% currently.
When you have a policy loan, your cash value continues to accrue tax free, compound interest. While it is to your advantage to pay off the loans, you don’t have to and the policy will continue to be active, as long as you pay the premiums and your cash value will continue growing inside the policy, regardless of the fact you have a policy loan.
Key point:
This policy loan and the characteristics above allow you to do very important things.
One is refinance existing consumer debt and pay the interest to yourself.
Example:
You have a car loan, principle balance $10,000.00 USD, financed at 4 years for 13% interest. If you have $10,000 in cash value, you can obtain a policy loan for $10,000, 4 year term, at 5%, and you pay the loan to your insurance company. This loan is NOT from your cash value, it is secured by your cash value. This is an important distinction, because first, it means your cash value continues to accrue compound interest at 5%, and second, you save on the difference in amount of interest 13% from the bank, versus 5% from your insurance company. Now the third point is this, because your not paying the bank 13%, you save the difference 13% minus 5% or 8% interest and that’s income to you.
Step back for a moment and realize, that you have assumed a “Banking function” providing a car loan, using your Whole Life Insurance cash value and the policy loan. You have now become your own private bank.
Now, take this a step further. Ten years after having this Whole Life Policy you have a cash value equivalent to $50,000.00 USD. You have found a house you want to buy, which costs $45,000.00 USD. YOU COULD go to the bank and borrow $45,000.00 and pay a 30 year, compound interest mortgage at 10%. Or you could borrow $45,000 from your insurance company, secured by your cash value in your Whole Life Policy and pay it back at 5% simple Interest. Now you have replaced a second “banking function” obtaining a home loan, by borrowing the money from your insurance company, via a Policy loan, secured by your cash value. Once again, you have now become your own private bank.
This characteristic of Whole Life Insurance has been used by those individuals who understood it for over 150 years. This is indeed a form of decentralized Banking, because your policy loan is secured by your cash value, so there’s no qualifying for this loan. You don’t need a credit check or to provide proof of employment. The only person who decides if you get this loan, is the policy owner, which is usually you.
Now, consider this, before you die, you could create a family trust. Inside this trust you could put a Whole Life Insurance Policy which is owned by the trust, on your child and the trustee is your child. Your large death benefit would become one large paid up insurance premium creating immediate cash value, tax free. No federal income taxes and no estate taxes. Your child would now control a large cash value account to obtain policy loans secured by that cash value. You have left your child a “Bank”. Your child can borrow against the cash value, mean while the cash value continues to accrue compound interest, tax free and the bank you created continues to grow.
Lastly, you should realize that this is not a fantasy. This is what a John D. Rockefeller , one of the richest man in the history of the United States did and his fortune has only grown since his death. (See References below).
Remember knowledge is power, power brings wealth and wealth brings freedom.
Free yourself.
✍🏼 by Shortsegments.
References
Investment Book Review: Killing Sacred Cows
https://www.steemleo.com/investing/@shortsegments/investment-book-review-killing-sacred-cows
Book a Review: The Bank on Your Self Revolution
https://www.steemleo.com/steemleo/@shortsegments/book-a-review-the-bank-on-your-self-revolution
Book Review: What would the Rockefeller’s Do?
https://www.steemleo.com/realityhubs/@shortsegments/book-review-what-would-the-rockefellers-do-ci7ksbsl