The Bank On Yourself Revolution. Pamela Yellen
7. Bank On Yourself has important advantages not offered by traditional investments. Your money will grow predictably. It doesn’t go backward or suffer a lost decade, and you will know right from the start the guaranteed amount it will grow every year. You can go to sleep at night confident that, on the day you need it, your money will be waiting for you.
The 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