A shocking number of Americans live 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 and in poor financial shape? 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 is easy to fund and 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, buying a car, or covering health care expenses. However, the interest rates that are tied to traditional lending can cause you to bleed out wealth that could have otherwise been accumulated for your family.
Private family banking can ensure this never happens while allowing you the option of borrowing funds from a whole life insurance policy you set up. This lets you access cash when you need it without borrowing from a traditional bank or other for-profit loan-making organization.
Besides protecting you from debt, family banking also comes with several tax benefits and a number of other financial advantages. Read the rest of this article to find out what these are and to evaluate if the strategy is right for you and your family.
How Private Family Banking Got Started
Before we dive into the mechanics of private family banking, let’s take a look at how the financial strategy got started.
During the 1980s a man named Nelson Nash found himself 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, also referred to as infinite banking. 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 a book he wrote called: “Becoming Your Own Banker: Unlock the Infinite Banking Concept”. It is also known among his devotees as the ‘Nelson Nash book’. This book can be found on Amazon.com or from Barnes and Noble or through most other major booksellers.
Other books on the topic have since been written on creating a so-called family bank, and the method has become a widely used, 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 these work to increase your financial health and to build wealth for you and your family.
Family Bank Funding with Whole Life Insurance Policies
Life insurance can be generally 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 insurance policy, you are covered for a certain period, for example, 15 years. Once that period is over, if the policy is unclaimed, it falls away.
In this case, you would need to take out a new policy, and all of the money that you put into the expired policy would be lost. This kind of life insurance policy has no cash value.
Whole life insurance works differently to term life. 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 for everyone that can make use of them.
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 whole life insurance policy
You can also choose to completely draw out the cash value of your life insurance 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 a loan approval process. If your cash value is high enough, all you have to do is request your ‘loan’. With a family bank, there is no need for credit checks, collateral, or any of the other traditional requirements that typically 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.
The Advantages of Our Family Banking Concept
Private family banking and the family bank concept we use holds a few key advantages. These can be broken down into the following areas. Let’s take a closer look at each of these.
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. It gives you 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 this strategy works.
When you borrow from your whole life insurance policy, you will pay interest on the borrowed amount of money. 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 holdings to meet your cash 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 this Family Banking Concept 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 advantages 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 and family bank funding is easy to do with our strategy.
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.
At LivingWealth.com, we are a team of experts that are passionate about empowering people like you to realize financial freedom through infinite banking. We are happy to help you in any way that we can realize your goals.
If you have any questions or would like to explore the strategies outlined in this article in more depth, then contact us, or book a live consultation today to get the advice you need to use infinite banking your advantage to design your own private family banking plan.Read More
The University of Michigan and its football coach, Jim Harbaugh, recently agreed to an updated contract that will increase payments from the school, as well as loan Harbaugh $4 million in 2016 and $2 million for the following five years to pay life insurance premiums. According to information from a Freedom of Information Act request, the first $2 million loan payout was made on June 3, and each additional payout will be made each December.
According to reports, Harbaugh does not need to repay the loan until he dies, as long as that insurance policy remains active. Upon his death, the university can recoup the investment it made, and the rest of the insurance payout leftover after the loan is settled will go to Harbaugh’s beneficiaries. If the policy is stopped, Michigan will still be able to get its money back from the insurer.
It is a tremendous savings vehicle for Harbaugh, to be sure. As a result of this deal, if Harbaugh dies while Michigan is paying for the policy, his heirs will get at least 150 percent of the premium that has been paid. This clause also protects Michigan — Harbaugh is allowed to borrow against the policy while alive, but must keep at least 150 percent of the value of the premium untouched, ensuring the school will be able to get back its investment if needed.
There are other contingencies in place as well. If, for example, Harbaugh is fired from his position or decides to leave the school, the university will no longer provide the loans for paying these premiums. If the policy is canceled afterward for any reason, Harbaugh must pay back the money loaned to him by Michigan.
This arrangement between Harbaugh and the University of Michigan is similar to the Infinite Banking principle we use as a vehicle to accumulate wealth at Living Wealth.
It allows Harbaugh to avoid traditional banks, getting access to money that can then grow significantly larger. While he does have to pay back the loan eventually, by the time he pays it off the money he has will dwarf the amount he needs to return to Michigan.
The University of Michigan, from an asset accumulation (endowment) perspective, is one of the top ten universities in the United States. Seems like smart people making smart business decisions.
For more information about Infinite Banking and our services at Living Wealth, contact us today.
Nate Scott, Client Development Coach
Nate Scott joined Living Wealth, Inc. with a desire to help families and small businesses become financially free. It was there, under the wise leadership of Ray Poteet, that he learned the power of “Becoming Your Own Banker” through Private Family Financing (PFF) and has made it his mission to tell others so that they can feel the same sense of freedom and control that he enjoys today.
Nate loves to teach people the benefits of becoming their own banker and to coach them on how to successfully implement the system in their constantly changing lives. He longs for everyone to hear the truth about how money really works and to understand the power and freedom that Private Family Financing can bring to their families.Read More
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