Whole Life Insurance, as a financial tool to build your own “Mini-Bank” was well know and used by multiple generations of farmers in America for over 100 years.
Today we review an illustration.
The name “Whole life insurance” is the name a life insurance policy that a farmer took out when he was very young and he used it for his “entire or whole life”, thus it earned the name “whole life”.
A “Whole Life” life insurance policy contains as an integral or core component, a savings account called the “Cash Value” of the policy, upon which the insurance company pays the Policy owner a guaranteed rate of compound interest. The guaranteed interest paid is “compound interest” and it accumulates within the savings account portion of the “Whole Life” insurance policy and it is called the “Cash Value” portion of the policy.
The farmer or policy owner is allowed to apply and receive “loans” against the cash value, for which he pays a “pre-agreed upon” and “fixed rate” of “simple interest” for the life of the policy. Which by design is in effect for his whole life, by design.
Because the loan was secured by the cash value the farmer didn’t need to submit to a credit check or provide tax returns or paystubs. He simply requested a loan in writing and he could receive the money in 1-2 days. Sooner if he went to insurance office in person, that way same day service was possible. The farmer used the cash value portion of his whole life policy as a financial instrument to finance his needs for purchases not unlike the way the modern individual uses financing from a bank to finance his purchases of things he needs every day.
The farmer used this financing tool called cash value to finance the purchase of seeds and other essential equipment on a yearly basis while running his business, which was his farm. And this financial toll was an essential part of his financial ecosystem. The whole life insurance policy allowed him to function to various degrees as an individual financier, independently of the banking system because he provided his own financing for his daily needs. Then when the farmer died he left to his wife and children the knowledge of this financial system which allowed him to function as an individual independently of the banking system because he provided his own financing for his needs and he left to them a death benefit which allow them to purchase the farm and pay off his debts when he died. Thus he created a personal debt facility with the loans collateralized by the cash value portion of the policy, which was essentially a personal bank. It is an independent financial system which basically financed his life and business and at the end of his life he made sure that his children were better off then he was financially by eliminating their main debt “the mortgage on the farm”, which was paid off by the death benefit of his whole life insurance policy.
These ideas and concepts were well known in America, but appear to have been lost in our transition from a largely farm based economy to a largely industrial one. Ironically, the only part of this knowledge, which remained widely distributed in our culture was the association of dying with the phrase “bought the farm”. But it is totally stripped of its financial ramification and financial achievement. The current understanding of the phrase is simply that someone died.
