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How come I hear so little about Self Banking strategies these days and it was the rage for several years?

Buy a whole life participating policy and over fund to MEC limits. I almost never run into these once highly marketed plans and it seems like this lower interest rate environment would be even better for these contracts? Any thoughts on this or is Central Florida just quiet on the subject?

May 04, 2012 by Scott from Maitland, FL in  |  Flag
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2 votes

I would echo Kim's comments . . . "Bank On Yourself" is nothing more than a marketing angle to sell more life insurance. And life insurance as an investment is rarely, if ever, a good financial strategy.

For a recent and objective review of this concept, I encourage you to read this article by Allan Roth: http://cbsn.ws/JyFpa4

Comment   |  Flag   |  May 04, 2012 from Atlanta, GA

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Another factor the salesman will not share with you, probably because he is unaware of it himself, is that while you are drawing down your balances and accruing loan balances and interest, your insurance costs will be rising every year, thus increasing the drag on the policy and potential for failure.

And do not take the numbers they present at face value. Every illustration of this concept I have seen uses unrealistic assumptions for expenses and rates of return.

Finally, keep in mind that these policies pay HUGE commissions to the selling agent. Ask yourself, can the company pay so much to the agent, cover it's own operating expenses and profit margins, and STILL give you a pot of gold at the end of the rainbow?

(Russ' article link above is excellent. Thanks Russ!)

Comment   |  Flag   |  Jul 12, 2012 from Arvada, CO

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Uh, because it's a really bad idea? How does it benefit you to earn say, 4% on the cash value and then turn around and pay 4% in loan interest to get your money back? And...they never say much - if anything - about the risk of the "margin call" you would receive if the policy runs out of money and it's either 1) pay us a large $ number or 2) have the policy lapse and all of the "tax-free" cash become taxable income. Keep in mind the fundamental law of life insurance: insurance companies have a negative cost of funds. The next time you get a pitch for this, ask the pitcher if he/she is doing it for themselves...ask for proof..."Uh, i'll have to get back to you on that..." Of course they will.

1 Comment   |  Flag   |  May 04, 2012 from Redmond, WA
David

Love this answer!

Flag |  Jun 02, 2012 near San Diego, CA

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