Читать книгу The Bank On Yourself Revolution - Pamela Yellen - Страница 11
ОглавлениеThe Engine Behind Bank On Yourself
An invasion of armies can be resisted, but not an idea whose time has come.
—VICTOR HUGO
BASED ON what I shared in the last chapter, can you see why doing the same-old, same-old is not going to get you where you want to go? Painful, isn’t it? Crazy-making?
When I came to that same realization, I was ready to ditch Wall Street, fire my banker, and take back control of my financial future from those yahoos who had threatened it! But how? As a business-building consultant to more than 40,000 financial advisors over two decades, I’ve investigated hundreds of different financial vehicles, products, and strategies in my search for a safe, simple, and predictable way to grow wealth—no matter what happens in the stock and real estate markets. Most turned out to be not even worth the paper they were printed on; some were actually dangerous to your financial health. My husband and I put the best of the bunch into practice in our own financial plan, and most of those turned out to be disappointments, too. We lost every penny of the six figures we put into just one supposedly “safe” investment.
INSIDE THIS CHAPTER …
• What the Experts Got Wrong
• Using Dividend-Paying Whole Life Insurance to Build Wealth
• How the Economy Affects Bank On Yourself
• The Big Lie: Buy Term and Invest the Difference
• Why Whole Life Beats Term
• Not a Good Bet: Equity Indexed Universal Life
Fortunately, my investigation uncovered one financial product that gives you an unbeatable combination of safety, guarantees, flexibility, liquidity, control, and tax advantages. I’m so confident of that statement that I’m offering a $100,000 cash reward to the first person who uses a different strategy that can match or beat it. My challenge has been out there since 2008, and no one’s won it yet. But feel free to give it a shot! And in the immortal words of Dr. Phil, “Good luck with that.” (To see if you can win that $100,000 Challenge, go to www.BankOnYourself.com/challenge.)
As I mentioned briefly in Chapter 1, this financial vehicle is a little-known variation of an asset that has increased in value every single year for more than 160 years, and it’s the basis of Bank On Yourself: dividend-paying whole life insurance.
It’s Not That Whole Life Policy!
You’re thinking, “She must be kidding, right?” If you have a knee-jerk negative reaction to whole life insurance, you’re not alone. After all, well-known financial advisors such as Suze Orman and Dave Ramsey, among others, will tell you to avoid whole life insurance like the plague. But the whole life policies used for the Bank On Yourself method are dramatically different from the ones these experts have criticized in three key ways. Their objections simply don’t apply to the Bank On Yourself–type policies. For example:
1. Financial pundits say that the money you can access in the plan, your cash value, grows much too slowly in a whole life policy. They claim that you typically won’t have any cash value at all in the first couple of years.
True for some whole life policies. However, a Bank On Yourself–type policy incorporates little-known riders that dramatically accelerate the growth of your money in the policy so you have up to forty times more cash value than the policies most experts talk about, especially in the early years of the policy. Adding these riders, or options, allows you to use your policy as a powerful financial management tool from day one. (I’ll show you exactly how these riders speed up the growth of your cash value in the next chapter.)
Celebrity financial gurus say one reason for the slow growth in cash value in a traditional whole life policy is the high commissions paid to the insurance advisors who sell them. Again, true in some other policies. But when a qualified advisor structures a Bank On Yourself–type policy for you, they receive 50–70 percent less commission because much of your premium is directed into the riders that make your cash value grow significantly faster.
MYTHBUSTER
The Commissions Are High
Who complains the loudest that Bank On Yourself–type policies pay too much commission? Often stockbrokers and financial planners. They claim that high commissions are the only reason agents sell these policies.
Nope. The reality is that those whining money managers are actually making up to ten times as much off your business as Bank On Yourself Advisors! Let’s compare: Assume you put $10,000 per year for thirty years into a Bank On Yourself–type policy and the very same amount into an investment account.
According to those financial planners and experts, the agent who sold you the policy would earn about $10,000 commission in the first year and a small commission each year after that.
That would be true of the policies most advisors talk about. But because a Bank On Yourself Authorized Advisor will direct much of your $10,000 annual premium into the riders that make your cash value grow a lot faster, that advisor will only make between $3,000 and $5,000 in the first year, not $10,000. They’ll receive a small renewal commission during the remaining years, bringing the total commission paid over thirty years to about $8,500.
Meanwhile, the planner who’s complaining that this is way too much commission will earn a management fee every year of at least 1 percent of your account value (and often it’s 1.5 percent or even 2 percent) which, if the market has moderate returns over the same thirty years, means he’ll earn $100,000—or more! You don’t need your calculator to figure who’s getting paid way too much.
Add to that, the investment account manager will not be able to tell you how much your account is going to grow over that thirty years because he has no clue. (Wanna try a fun experiment? Ask your broker or money manager if he’ll guarantee that you’ll have a specific amount in your account in ten or thirty years, and if he’ll give you a money-back guarantee if he misses the mark!)
On the other hand, before you even initiate a Bank On Yourself plan, you’ll know the minimum guaranteed value of your plan in any given year.
So let me ask you: Would you rather pay $100,000 to the money manager who has no idea how it will all turn out in the end? Or $8,500 to the Bank On Yourself Advisor who can tell you your guaranteed result? By the way, unlike fees you pay a money manager, all fees and expenses, including the Bank On Yourself Advisor’s commissions and the cost of insurance, have already been deducted from your guaranteed bottom-line numbers
2. Most financial experts and advisors only discuss whole life policies in which the death benefit stays level for the life of the policy. Let’s ignore the fact that we researched over forty life insurance companies and couldn’t find any that still offer that kind of whole life policy. (I’m thinkin’ Suze and Dave just might want to update their talking points.)
In dividend-paying whole life policies (as in Bank On Yourself–type plans), dividends can be left in the policy to purchase additional coverage while at the same time growing your cash value in the most efficient way possible. I’ve posted one of my own policy statements on my website that shows you how the death benefit can keep growing. In this case, it increased by more than $8,000, or 3.5 percent, by the end of the first year. (You can see my statement at www.BankOnYourself.com/policy1.)
Over time, the death benefit can increase many times over, as you’ll see in the next chapter.
3. The financial experts often complain that the insurance company “only pays you the death benefit and keeps your cash value” when the policy owner dies.
Really? Then how do you explain this: In another one of my policy statements posted at the link above, you can see that if I’d died on the date the statement was issued, my family would have received a check for $381,776, which is a few thousand dollars more than the original $250,000 death benefit and current total cash value ($128,361) combined.
It’s amazing to me that so many people—and so many experts—hold whole life insurance to a totally different standard than other financial vehicles. For example, if you have $100,000 of equity in your home and you sell it for $250,000, do you expect to end up receiving both amounts, for a total of $350,000? Of course not.
However, as I just demonstrated, a Bank On Yourself–type policy can deliver that advantage!
Whole Life as a Wealth-Building Vehicle
How can I explain the difference between whole life as a wealth-building vehicle and most other products and strategies the financial gurus favor? On the freeway, can you spot the difference between a teenage boy putting daddy’s hot sports car through its paces, and a young suburban mother in her minivan taking two kids to play soccer, with a toddler buckled in a car seat? One driver is trying to get somewhere fast, while the other is getting to her destination while doing everything possible to protect those who are near and dear to her. If you can understand that difference, then maybe you can sense the difference between the Wall Street Casino and the life insurance industry.
As Jesús Huerta de Soto noted in his book Money, Bank Credit and Economic Cycles:
The institution of life insurance … is based on a series of technical, actuarial, financial and juridical [relating to the law and its administration] principles of business behavior which have enabled it to perform its mission perfectly and survive economic crises and recessions which other institutions, especially banking, have been unable to overcome. Therefore the high ‘financial death rate’ of banks, which systematically suspend payments and fail without the support of the central bank, has historically contrasted with the health and technical solvency of life insurance companies. (In the last two hundred years, a negligible number of life insurance companies have disappeared due to financial difficulties.)11
With Bank On Yourself–type policies, you receive a guaranteed and predictable cash value increase every single year—in both good times and bad. In addition, you have the potential to receive dividends. While not guaranteed, the companies preferred by Bank On Yourself Authorized Advisors have paid dividends every year for more than 100 years, including during the Great Depression.
The growth in a whole life insurance policy is not only guaranteed, it’s exponential. It’s designed to become more efficient every single year, simply because you stick with it rather than jumping from one investment to another. This gives you some built-in protection against inflation.
Corporate Accountant Fires Wall Street
Derek Logan is a textbook poster boy for someone who did all the right things financially that we’ve been taught to do. He’s been working since he had a newspaper route at age ten. He diligently set his goals and used a budget system. He maxed out contributions to his 401(k) and had his home paid off by the age of forty-five. As a corporate accountant for more than thirty years, Derek realized he had achieved all of the goals he set for himself—except for the goal of being able to retire at a specific age with a specific amount of money.
As he closed in on his hoped-for retirement age, he became disheartened and frustrated because the value of his retirement account had been slashed several times over the years. After doing his due diligence like any good accountant, Derek started a Bank On Yourself–type policy. And he’s thrilled that he no longer throws his hard-earned dollars down on the tables of the Wall Street Casino!
When the market recently experienced volatility as it so often does, Derek sent me this grateful note: “As the market went down, I smiled. Not at the anguish so many must have been feeling, but at the joy of knowing I wasn’t being affected—this time, or ever again. I printed Thursday’s headline—512 Point Plunge on the Dow!—and included it in my Bank On Yourself portfolio notebook as a reminder of the best financial decision I’ve ever made!” (Read or listen to my interview with Derek at www.BankOnYourself.com/derek.)
For most of us, the whole life insurance scorned by financial pundits actually proves to be a lot safer and smarter—if you pick the right policy. Be warned: Not all cash-value life insurance policies are created equal. In fact, some of them, such as universal and indexed universal life, should be avoided. (See why at the end of this chapter.) Do your own investigation and don’t jump from the frying pan into the fire.
Dentist Achieves Financial Security
“I’ve used the Bank On Yourself method since 2004 and now have several policies. We’ve used them to finance our RV, home renovations, vacations, and unexpected expenses. In the process, we’re growing wealth safely and securely for retirement that we can access when and how we want—no taxes due on it.”
—Thomas Hesch, DDS
By doing your research, you’ll find that Bank On Yourself–type policies build a guaranteed and predictable cash value—and they build it much faster than policies most financial advisors talk about. Both your cash value and your death benefit grow more efficiently every year, and your cash value is guaranteed to equal your death benefit when the policy matures.
This is true wealth creation with none of the volatility and risk associated with the stock and real estate markets. You know the minimum guaranteed value of your policy in any given year, as well as the minimum guaranteed income you could take from the plan and for how long you could take it. “I tell my clients about it every day. Simply put: peace of mind,” says Patricia Smith, a hair salon owner in New England. “I’ve just gotten started, but already I feel more confident about my future than I have in my entire life riding the Wall Street roller coaster. I love knowing that if I’m ever in a place where I need money unexpectedly, it will be there.”
Is This a Safe and Secure Place to Put Your Money?
The companies recommended by Bank On Yourself Authorized Advisors are among the financially strongest life insurance groups in the country. In essence, they’re owned by the policy owners (you!), which means these companies focus on the long-term best interests of the policy owners rather than the short-term demands of Wall Street.
Many people don’t realize that life insurance companies are strictly regulated via four layers of protection:
1. They’re audited regularly by the state insurance commissioner’s office (sometimes by dozens of different states) to ensure they maintain sufficient reserves to pay future claims and that they are on solid financial ground.
2. If a company gets into financial difficulty, the state insurance commissioner’s office can take over and run the company in the interests of policyholders. Historically, a failed insurer’s business is then taken over by another company, according to the National Organization of Life and Health Insurance Guaranty Associations.
3. Most insurance companies are audited regularly by several independent rating companies.
4. Additional policy owner protections are available on a state-by-state basis. For example, in one annual policy statement I received, there was a notice regarding the various protections provided by the Insurance Guaranty Association of New Mexico, the state where I live.
In addition to these layers of protection, life insurance companies are simply run differently. Remember that mom driving in the minivan versus the kid in the hot sports car? Life insurance companies aren’t trying to grab short-term profits wherever they can. Their mission is to get you and your family to your destination safely.
MYTHBUSTER
The Truth About AIG
Is AIG an example of a big, bad insurance company? When AIG captured headlines during the financial crisis and received a bailout, many people assumed their life insurance operations were at fault.
According to a 2009 posting on the National Association of Insurance Commissioners (NAIC) website, they weren’t. They “did not receive a bailout; they are financially solvent.” The NAIC also stated that AIG’s insurance subsidiaries did not cause the problem and would, in fact, be part of the solution. It was the company’s non-insurance operations that wreaked all the havoc.
Facts of Life (Insurance)
• Drivers of the economy: Life insurers have $4.3 trillion invested in the U.S. economy, making them one of the largest sources of capital in the nation.12 They paid more than $19 billion in federal, state, and local taxes in one recent year.
• Meets safe capital requirements: I’ve said that life insurance is safe, but don’t just take my word for it. Banks are legally required to have a foundation of very safe liquid assets, known as Tier 1 capital. Life insurance is considered to be so safe that bank regulators allow life insurance policies owned by banks to meet their Tier 1 capital requirements. According to the most recent statistics, the nation’s banks owned guaranteed, high-cash-value permanent life insurance with a surrender value of approximately $135 billion.13
• Blessed by the Oracle of Omaha: Warren Buffett, widely considered to be the most successful investor of our time, owns several life insurance companies. (Buffett can’t legally own the kind of insurance companies used for the Bank On Yourself concept because they are owned by policy owners rather than stockholders.)
• Diversified low-risk investments: As for the companies recommended by Bank On Yourself Authorized Advisors specifically, the bulk of their portfolios is invested in investment-grade fixed-income assets. Their bond portfolios are highly diversified across many industries and companies, and typically no investment represents more than 1 percent of assets. Less than 1 percent to 2 percent is invested in U.S. Treasury or other government debt. These companies had virtually no exposure to the risky investments that caused the market meltdown of 2008.
Due to their financial strength and reserves, these companies have the ability to hold on to any assets that may decline in value for many years until those assets recover.
• Source of capital, even in tough times: Life insurance cash values serve as a source of available capital to individuals, families, and businesses, even when credit is difficult to obtain. As of the last available data, there were $129 billion in life insurance policy loans outstanding.14
The Pillar in Retired Navy Commander’s Financial Plan
“I almost didn’t call the Bank On Yourself Authorized Advisor I was referred to. When I first heard about Bank On Yourself, I thought it was another investment scheme and almost didn’t look into it. I’m glad I overcame my concerns—it’s now a major pillar in our financial plan.”
—Commander Robert Chambers, Jr., U.S. Navy, Retired
• Bedrock of our grandparents’ savings plans: Back in 1900, half of all Americans’ savings was held in life insurance and annuities.15 And fully one-third of families owned whole life insurance policies in 1950.16
• Help great businesses succeed: Many famous people have used life insurance policy loans to start or grow their businesses when no banker would lend them a dime. Following the 1929 stock market crash, famous retailer J. C. Penney borrowed against his life insurance policies to help meet the company payroll. Had he not had this ready access to capital, the company probably would have been forced to close its doors.
Walt Disney borrowed from his life insurance policy in 1953 to help fund Disneyland when no banker would lend him the money.
McDonald’s might have only served a few hundred thousand burgers had it not been for Ray Kroc’s whole life insurance policies. Kroc had constant cash flow problems during the early years and borrowed from his policies to help cover salaries of key employees and to create the initial Ronald McDonald advertising campaign.
In 2002, Doris Christopher sold her kitchen tool company, the Pampered Chef, to Warren Buffett for a reported $1.5 billion. She had started the company in her suburban Chicago home in 1980 with $3,000 she borrowed from her life insurance policy to purchase inventory.
Foster Farms was founded in 1939 when Max and Verda Foster borrowed $1,000 against their life insurance policy to buy an eighty-acre farm near Modesto, CA.
All of these fully documented stories and more can be found in the article Six Famous Brands Started or Saved by Life Insurance on www.LifeHealthPro.com.
Of course, you don’t have to be famous to take advantage of the financing opportunities these policies offer. Suzi Hersey, a real estate investor in Virginia, reported, “I was able to take a loan with no questions asked and no credit check. I’m the one who determines when and how I’ll pay the loan back. I want to pay the loan back because I’m recouping interest I would have paid to a credit card company or bank. And by paying it back the way my Authorized Advisor showed me, my plan value increases. I feel so fortunate to have found Bank On Yourself.”
How the Economy Affects Whole Life Policies
Over the years I’ve been asked a number of questions about how Bank On Yourself policies might fare in different economic situations. I hear from people every day who tell me they want to add Bank On Yourself to their financial plan, but they haven’t quite been able to make the leap yet. They worry about what direction the economy is going. They want to see what the political climate will be. They want certainty in an uncertain world.
I don’t have a crystal ball, but let’s take a look at the potential impact various economic conditions might have on Bank On Yourself policies:
• A decline in the dollar: No one knows for sure what direction the dollar will go. The current economic environment can change at any time, and it can turn on a dime, as it has in the past. We’re a global economy, and the actions of other nations impact us and our own economy.
An article from MSN.com’s MoneyCentral on October 13, 2009, reported that when the dollar was taking a beating in 2009, central banks in numerous Asian countries were “actively buying dollars to check its fall against their currencies.” Why would they do that? Because their nation’s exporters “can’t handle a drop in profitability and competitiveness” if the dollar drops too far.
As Bloomberg.com reported on August 24, 2011, “A weak dollar may be one of the bright spots in the U.S. economy, and it could be the gift that keeps giving.” The article spelled out several ways the U.S. benefits from a declining dollar.
