So I spent about and hour writing this response to a post on a blog called “The Long Run Blog,” but for some reason wasn’t approved to post, was deleted, or something like that. There are a few responses on the blog up until about 2009, then dead air… my guess is the author doesn’t want to deal with people who oppose his opinion.
Anyways… I spent so much time writing it that I needed an outlet for it, so you get to hear about. The blog is located here if you really want to dig into it: thelongrunblog (dot) wordpress (dot) com/2009/04/22/be-your-own-banker/
“I agree thoroughly with some of the comments you’ve made and am glad you made them, but I just want to suggest that there may be an angle on this that is of value. I, too, cringe when I see the over-the-top websites that portray a too good to be true sentiment, but I think you find that in most industries. Just to be clear, because someone will ask it, I am an advisor and do help clients implement this strategy. I’m actually the founder of becomingyourownbank.com, which most people come across when searching this concept. (notice there is no link- not looking for one).
First and foremost, there is a large misconception with this strategy that most people, including agents, believe. It is that you borrow from yourself and pay yourself interest. In reality, you do not pay interest to yourself. You are paying interest to the insurance company. This, in my opinion, is where the true value is. As a business owner, I get a deduction on the interest that I wouldn’t get when paying myself directly. In addition, it doesn’t reduce my paid-up additions (this may be a little advanced, but valuable for those that follow), only my death benefit if I were to pass on. If you have a hard time seeing the value in the insurance, then don’t use it. The principle is still sounds, and will increase the efficiency of your finances. For me, life insurance has more value than anywhere else I can find. It has favorable, steady growth, competitive interest rates, tax advantages, flexibility, guaranteed loan access, and other factors that I feel are important to creating wealth. If there were a better vehicle then I would be certainly be interested in hearing your opinion as to where.
That being said I want to reference your post above. You are correct that these are similar examples, but you are locking your view into a 10 year window. In the 10 years, especially the first 5, there are many vehicles that could perform better. But the truth is I’ll need money in 10 years, 30 years, 50 years… my whole life. What happens past the 10 year point is where the value of this strategy picks up and surpasses your alternatives. Even in your scenario, you are illustrating how close the outcomes are to buying term and whole life insurance. Now drag that out into the future as term becomes more expenses and whole life stays the same. In my opinion there is far greater value to locking in the insurance costs now and having the whole life if indeed they are similar. As you know, the term insurance will only increase in cost, and will ultimately be too expensive. So you have essentially given a choice here, would you rather die with insurance or die without it. This is a factor rarely considered, but since you bring it up, I’ll entertain it. The family wealth in the 2 examples is drastically different- you can either die with a couple hundred thousand to leave to your family, or die without any at all, but still have the same cash situation. I will choose the insurance everytime. I believe the point is to die with it.
That being said, from a cash growth standpoint alone, you need to look a little farther into the future. and that cash value will be share a significantly better story. If you have the time frame to do it, it is worth the wait.
Unfortunately there is a lack of understanding both in general, and amongst agents that sell this type of strategy, which ultimately takes away from the real objectives, in my opinion.”