What is Private Family Banking?
A shocking number of Americans are living paycheck-to-paycheck. Surveys show that 74% of all employees live month-to-month, and more than 25% of families earning a six-figure income do the same. Why are so many people so hard up? In many cases, the answer to this could lie in the mismanagement of money and escalating debt cycles. The more you earn, the more credit you are entitled to, which combined with interest and fees, erodes family wealth. That’s why it is worth learning about private family banking.
Family banking provides numerous benefits and can ensure that you never fall into a debt cycle.
Debt is not necessarily a bad thing, as it can facilitate important actions such as buying a home, paying for college, or covering health care. However, the interest rates that are tied to traditional lending can cause you to bleed out wealth that could have been accumulated for your family.
Private family banking can ensure this never happens while allowing you the option of borrowing funds from whole life insurance policies you set you. This lets you access cash when you need it without borrowing from a traditional bank.
Besides protecting you from debt, family banking also comes with tax benefits and a number of other advantages. Read on to find out what these are.
How Family Banking Started
Before we dive into the mechanics of private family banking, let’s take a look at how family banking started.
During the 1980s a man named Nelson Nash was in a predicament. He had overextended himself on debt and was unable to build wealth thanks to the resulting interest and repayments. At the same time, he recognized that sometimes, to build wealth, you need to be able to borrow money.
As a result, he struck upon what has now become known as the private family banking concept. A method where families can effectively become their own bank, build up wealth, pass it to future generations tax-free, and be able to borrow “from themselves” (from life insurance policies) at essentially no interest. We’ll get to how to do that in a bit.
Over time, his ingenious method has become popularized through the publication of his book “Becoming Your Own Banker: Unlock the Infinite Banking Concept”, also known as the ‘Nelson Nash book’.
Other books have since been written on creating a so-called family bank, and the method has become a widespread, yet little known, wealth hack.
How Family Private Banking Works
So, how does family banking work? How do you set up a family bank and become your own banker?
Private family banking is based on one core offering. Whole life policies purchased through life insurance companies. Let’s take a look at how they work.
Whole Life Policies and Family Banking
Life insurance is divided into two categories, namely whole life insurance and term life insurance.
Term life insurance is the most common type of life policy nowadays, as it is the cheapest. With a term life policy, you are covered for a certain period, for example, 15 years. Once that period is over, if the policy is unclaimed, it falls aways.
In this case, you would need to take out a new policy, and all of the money that you put into the expired policy is lost.
Whole life insurance works differently to this. As the name suggests, whole life policies are for the whole duration of a policy holder’s life. During this time, your monthly payments accrue and give your policy cash value. This makes whole life policies a viable savings vehicle.
When the insurance policy is claimed (in the event of your death or at a stipulated maximum age), the gain from it is tax-free.
Draw out the cash value of your policy
You can also choose to completely draw out the cash value of your policy when it has matured. This occurs when your cash value reaches the value of your death benefit.
At the same time, you can choose to borrow cash from your whole life insurance policy before it has matured and before it reaches the value of the death benefit.
There are quite a few advantages to this, one of them being that you won’t have to go through an approval process. If your cash value is high enough, all you have to do is request your ‘loan’. With a family bank, is no need for credit checks, collateral or any of the other requirements that come with taking out a bank loan.
This effectively gives you a form of cash flow insurance, provides a tax-efficient savings vehicle, and allows you to become your own banker through a family bank.
Now that you know the basics of how to become a private banker, let’s take a closer look at the advantages of this wealth-building system.
Advantages of Private Family Banking
Family banking holds a few key advantages. These can be broken down into the following areas
Let’s take a look.
The Ability to Borrow From Yourself Effectively Interest-Free
One of the biggest perks of private family banking is the ability to borrow from yourself, at no interest. Instant cash flow when you need it. Or let’s rephrase that, you will pay interest, but this interest will cancel out.
Here’s how it works.
When you borrow from your whole life policy, you will pay interest on the borrowed amount. This interest is set and does not rise over time.
However, the real benefit derives from where this money comes from. When you apply for a loan from your policy, the insurance company does not withdraw the funds from your policy. Instead, they use other funds in their holding to meet your request.
This means that the capital in your policy remains untouched, and continues to grow at a compounded rate of interest. Therefore, while you are paying interest to the life insurance company on the money you borrowed against your policy, your policy itself is canceling out this interest by generating its own positive interest.
This allows you to borrow—against your own money—and effectively not pay interest.
On top of this incredible advantage, as mentioned above, when borrowing against your insurance policy you also won’t have to jump through any of the hoops that you would with regular banks or lenders.
Tax-Free Wealth Growth Through Family Banking
The other sizeable benefits of family banking and the use of whole life policies to build wealth is that they allow for tax-free growth.
The compounded interest you earn on the money within your policy is not subject to tax, unlike most other investment vehicles. Over time this can pose a substantial saving, once which can effectively go back towards the policy and continue to earn more compounded interest over time.
Superior Estate Planning
The third main advantage of private family banking is that it allows for superior estate planning.
Depending on your assets, and where you live, death duties can take a sizeable chunk out of your estate. If you choose to store and accumulate wealth with family banking, you will be able to side pass this.
This reason for this is that life insurance payouts are tax-free. Because these are not taxable, you will be able to transfer the whole value of your fund to your heirs without paying death duties or tax.
Who is Family Banking for?
Family banking is, essentially, for anyone who wishes to build wealth, improve cash flow when needed, have financial independence from banks and lending institutions, and be smart about estate planning and the passing on of wealth.
However, there is one criterion for embarking on this method. You will need to be able to foot the monthly whole life insurance payments. These payments are substantially higher than term life insurance, which is the reason why term life insurance is now the main type of cover that people take out.
However, with some savvy financial planning and some stringent debt squashing, you may be able to structure your money matters in such a way as to afford a whole term life policy.
Are You Interested in Private Family Banking?
As you can see, private family banking poses a number of key advantage to those that are interested in leveraging this system. From gaining interest-free liquidity backed by your own money—to passing on your wealth tax-free, you have to admit that the perks are substantial.
If you are interested in learning more about this system of wealth building management, you are in the right place. We have a store of resources on the subject, and also offer consulting services. Additionally, you take advantage of our free infinite banking course that teaches the basics of the infinite banking concept.
We are passionate about empowering people like you to realize financial freedom through infinite banking and are happy to help in any way that we can. If you have any questions, contact us, or book a consultation today.
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