The bank on yourself insurance concept seems to be attracting attention for all the good and bad reasons. For some, it is the ideal way to safeguard their financial future without feeling the heat. While this is true to some extent, the known bank on yourself problems make it worth doubting.
For those who might not know, the bank on yourself insurance concept is nothing more than buying whole life insurance and taking out policy loans. How brokers choose to market it sounds so glamorous and financially beneficial. But you’d be surprised to learn that there are many things about this concept which most investors probably don’t understand.
So, how does the bank on yourself concept work? Fret not since it is pretty simply and it does great. For it to work, you will first have to buy a whole life insurance policy on yourself. With this in place, you should heavily fund the insurance cash value, after which you can borrow from the cash value when you need a loan.
You then have to pay the insurance policy back if and when you like. The secret lies in the fact that you must buy a certain type of whole life insurance policy. In most cases, the bank on yourself concepts makes use of the ‘paid up additions insurance policy.’
While it sounds far right, there are numerous bank on yourself problems that need to be addressed for it to be effective. For instance, you will always pay interest expense to borrow money from ‘yourself.’ Not to mention that you have to make do with loads and commissions.
Many will agree that there’s just not much of a reason to take advantage of the bank on yourself concept. Actually, most people borrow from these policies to fund an expensive goal like a car and end up paying the money in the hope that the interest credited is awash with the interest imposed. But what you end up doing is paying for a spread, which could prove costly.