The concept of self-banking has been around since the early days of banking. It’s a strategy allowing you to access your money faster and more flexibly than traditional banks offer. By taking charge of how you allocate and manage funds, being your banker can help increase financial security while providing numerous other benefits, such as savings on fees and interest, tax efficiency, and convenience. This blog post will cover why it could be beneficial for you to become your banker, outlining the specific advantages such a move presents, as well as providing practical guidance on getting started.,
5 Ways Strategic Self-Banking with Life Insurance Can Benefit You
In our article discussing the pros and cons of self-banking, we explored the upsides and downsides of using life insurance as a bank. Here are five benefits of strategic self-banking with life insurance that we have identified.
Security
Selecting a life insurance company with the highest ratings can provide a reliable base to establish financial stability. It is well known that companies prioritize mutual insurance, which is characterized by a long history spanning more than 150 years.
On the other hand, several financial institutions need to be more stable because they often undertake enormous risks, leveraged to dangerous levels. This was evident during the financial crisis of 2008. Additionally, many banks are actively involved in the derivatives market, which can be concerning. As of June 2021, the gross market value of OTC derivatives contracts was estimated to be $12.6 trillion.
In contrast to the high risks associated with Wall Street, life insurance is not an investment but a savings mechanism that serves as a “Safe Bucket.” It provides a solid financial base from which to conduct your financing, independent of Wall Street and big banks.
Liquidity
You should select a policy that grows considerable cash value early on in the policy’s life. These “banking” policies are not concerned with death benefits but with cash value accumulation.
By overfunding your policy, you are maintaining the status of a life insurance policy while stuffing as much money into it as possible.
This will allow you to maximize the velocity of your money by spending the money on other purchases. Taking out a loan against the cash value of the life insurance policy is a method of achieving this.
You will still receive interest and dividends on your policy’s entire cash value balance regardless of whether you are in the process of repaying your policy loan.
Privacy
Credit reports do not reflect your cash value or any policy loans. If you have a large outstanding policy loan, there will not be any interference with your eligibility for other loans, such as a mortgage loan for an investment property.
Additionally, life insurance loans do not require qualification. As a policyholder, you can contractually withdraw from your policy or borrow against it whenever and however you wish.
Tax-advantages
There are several benefits associated with life insurance, including tax-deferred growth, tax-free policy loans, and tax-free death benefits.
Life insurance is covered by several sections of the Internal Revenue Code, including section 7702. In its simplest form, a section 7702 plan refers to cash-value life insurance that benefits from several tax benefits under the Internal Revenue Code.
Leverage
Consider purchasing cash flow assets, such as real estate, with your cash value. This is an excellent real estate wealth-building strategy, where you borrow against your policy from the insurance company’s general account for the down payment. At the same time, the remaining 75-80% of the property is financed through a mortgage loan.
This strategy allows you to borrow money at a much lower interest rate than a bank or other lender would offer. It also allows you to create a passive income stream from the property’s rental income. Finally, it provides you with leverage to grow your wealth over time. This strategy, known as real estate investing, can be a great way to build wealth and achieve financial freedom. When you do so, you are using other people’s money, the capital of the insurance company and the bank, to finance your purchase.
The possibility of arbitrage exists because you can use your cash value as collateral to purchase assets that produce higher incomes. It is important to note that even though you still earn interest and dividends from your life insurance policy, you also earn revenue from your income-producing asset.
You should use the money you receive from your cash-flowing asset to repay the insurance company on your life insurance loan to repeat the process.
Moreover, you can explore more than just the field of real estate. This process can be used if you need to make any purchase, such as purchasing cars, financing your business endeavors, or even taking a vacation.
If you finance everything you buy, you should be your banker, charging yourself interest on the money you borrow rather than giving the money to a financial institution.
Conclusion
Being your banker allows you to control your financial future and maximize your income and wealth potential. The combination of strategic self-banking and life insurance provides several advantages. A tax advantage is available to help you sustain wealth sustainably while providing additional security, leverage, liquidity, and privacy.
The key to creating allure around maximizing the returns on your savings lies in learning the principles of self-banking, practicing, and studying continuously.