Lifestyle Banking has revolutionized the traditional banking system we all know.
Do you know how?
Lifestyle Banking puts every one of us at the center of the banking system.
Instead of traditional banking, designed primarily to benefit banks, Lifestyle Banking was anticipated to help every individual become financially independent and wealthy.
And that is just the beginning.
In this article, we will go through the differences between Lifestyle and traditional banking.
Let’s get started!
Lifestyle Banking vs. Traditional Banking: Understanding the Basics
Before we start comparing these two banking systems, it’s important to note that it’s impossible to avoid traditional banking completely.
The idea of banks began as long ago as 1,800 BC in Babylon, and that idea is so deeply internalized in our society that it’s impossible to live outside of that system. We still need traditional banks to get paid, pay our bills, and fund our retirement plans.
So, when we say ‘traditional banking,’ we mean the process of depositing your money into a traditional bank account. Banks use that money to lend it to others who need it, charging them high-interest rates and paying you crumbs from the rich man’s table.
And, since you earn so little when you need to fund something in your life, you also borrow money from the banks, paying them the same high-interest rates.
That is traditional banking in a nutshell.
On the other hand, Lifestyle Banking offers guaranteed cash value growth between 2 and 5 times higher than traditional banks. On top of that, when you borrow money in the Lifestyle Banking system, you don’t have high-interest rates, and your money continues to grow uninterruptedly.
That’s only the basic distinction between Lifestyle and traditional banking; here is an extensive list.
10 Key Differences Between Lifestyle Banking and Traditional Banking
Now that you know the basics of Lifestyle and traditional banking, it’s time to see all the nitty-gritty details.
#10 Financial Instrument
Lifestyle Banking relies on a whole life insurance policy, while traditional banking is based on cash accounts.
What is the difference between the two?
The key difference between a whole life insurance policy used for Lifestyle Banking and a cash account used in a regular bank lies in their purpose and features.
- A whole life insurance policy for Lifestyle Banking is primarily designed to create a personal banking system where the policyholder can leverage the policy’s cash value to finance their purchases and investments while maintaining growth and stability.
- A cash account in a regular bank is a basic account that allows you to deposit and withdraw funds. Its purpose is to hold your money securely and provide access to banking services such as payments, transfers, and savings.
- A whole life insurance policy has several unique features, including cash value savings portion, death benefit, and life insurance loans, which will be discussed later in the article.
- A cash account at a regular bank generally offers the following features: deposit and withdrawal, interest, a debit or credit card, and online banking.
#9 Cash Value Growth
As we mentioned before, Lifestyle Banking utilizes a whole life insurance policy, and one of the main features is the cash value component.
Every time you make your monthly payments, one part of that money goes to the cash value component of the whole life insurance policy.
The policy’s cash value earns guaranteed interest, and taxes are deferred on the accumulated earnings.
The cash value increases over time as premiums are paid, and interest accumulates. A life insurance policy’s cash value directly correlates to the risk level the life insurance company faces. As the policy’s cash value accumulates, the insurer’s liability becomes more balanced, ultimately reducing its risk.
Cash value accumulation in life insurance can vary based on the policy’s functioning and market conditions. It is crucial to note that the whole life insurance policy’s cash value increases at a fixed rate without any room for ambiguity.
On the other hand, as of June 20, 2023, the average rate for savings accounts in the USA was 0.42%, according to the FDIC.
Let’s see the numbers to make it easier: if you put $1,000 into a savings account with an annual interest rate of 0.42% in five years, you will have $1,525. And it’s important to note that you can’t use the money from the savings account while it earns interest.
Whole life insurance’s cash value accumulation is entirely the opposite. You can use the money from your cash value component while it grows uninterrupted.
This leads us to another significant difference between Lifestyle Banking and traditional banking.
One of the most significant differences between these two ways of banking is taking loans.
We’re all familiar with traditional loans: you take a loan from a lender—usually a corporation, financial institution, or government. In return, you agree to specific terms, including any finance charges, interest, repayment date, and other conditions.
In numbers, it looks like this: you take a $100,000 car loan with a 6.58% interest rate (which is the average interest rate for a car loan), and after 10 years, you will pay the bank $136,746.53
In other words, the bank earns $36,746.53 just because they lend you money that is not even theirs!
On top of that, there are many terms and conditions about who can take out the loan and for what purpose. Usually, that is a time-consuming process that requires waiting and paying fees.
Contrary to traditional loans, we have policy loans. Thanks to the accumulated cash value of our whole life insurance policy, we can take out a loan against it.
Even though cash value will dictate how much money you can borrow, it will continue growing and accumulating even when you take out the loan.
And the best part?
You have the complete freedom to choose the interest rate, repayment period, and how you will use the money. Unlike traditional loans, interest rates return to you instead of the banks.
And that’s not all.
With policy loans, you don’t have to wait for approval, and your credit score doesn’t play any role in the process.
To summarize, traditional and policy loans have the same idea—the opportunity to lend money to someone who needs it—but that is the only similarity. They are entirely different in every other form and feature; traditional loans are designed for banks’ profits, and policy loans are designed to support you and your lifestyle.
#7 Interest Payments
In traditional banking, interest payments refer to the amount of money borrowers pay lenders in exchange for using their funds. This is typically calculated based on the principal amount borrowed and the agreed-upon interest rate, which is usually fixed or variable depending on the loan terms.
Instead of borrowing from a traditional financial institution, individuals can access the cash value within their whole life insurance policy and pay interest on the loan to their policy. The life insurance company typically charges a lower interest rate for such loans than traditional lenders.
By utilizing Lifestyle Banking, you can capture interest payments that would have otherwise been paid to traditional lenders and redirect them back into your policy, creating a source of financing for other investments or expenses.
#6 Tax Advantages
Whole life insurance policies and Lifestyle Banking can offer many tax advantages, including the following:
- Tax-deferred growth: Whole life insurance policies accumulate cash value over time, and the growth of this cash value is typically tax-deferred. This means that policyholders do not owe taxes on the growth of the cash value within the policy as long as it remains within certain limits defined by the Internal Revenue Service (IRS). This tax-deferred growth can allow the cash value to accumulate and compound over time without immediate tax implications.
- Tax-free withdrawals: Policyholders can often make tax-free withdrawals from the cash value of a whole life insurance policy up to the amount they have contributed to the policy. These withdrawals are generally considered a return on the policyholder’s account and are not subject to income taxes.
- Tax-free death benefit: The death benefit paid out to beneficiaries upon the insured person’s death is typically income tax-free. This means that the beneficiaries receive the policy’s proceeds without paying federal income taxes on the amount received.
- Potential estate tax advantages: Whole life insurance policies can be used as an estate planning tool to help minimize potential estate taxes. The death benefit proceeds from a life insurance policy are often excluded from the insured person’s estate, which can help reduce the overall estate tax liability.
With traditional banking, you don’t have any of these advantages. Instead, they will charge you:
- Income tax: The interest earned on savings accounts is taxable. The bank will report the interest earned on Form 1099-INT, and you must report this income on your income tax return. The amount of tax owed on interest income depends on your overall taxable income and the tax rates applicable to your jurisdiction.
- Capital gains tax (investment earnings): If you invest your savings in assets such as stocks, bonds, mutual funds, or other investments and earn capital gains from the sale of those investments, you may be subject to capital gains tax. The tax rate on capital gains depends on various factors, including the holding period of the investment and your overall taxable income. Short-term capital gains from investments held for one year or less are typically taxed at higher rates than long-term capital gains.
When comparing the flexibility of Lifestyle Banking to traditional banking at regular banks, there are several key differences to consider:
- In traditional banking, access to funds is typically limited to the amount you have in your checking or savings accounts or through the use of credit cards or loans. With Lifestyle Banking, you can access your whole life policy’s cash value. This can provide you with an additional source of liquidity beyond what traditional banks offer.
- In traditional banking, the financial institution typically sets loan terms and interest rates and is subject to market conditions, creditworthiness, and other factors. With Lifestyle Banking, as a policyholder, you set the loan terms and interest rates, making them work for you instead of against you.
- Traditional bank loans typically have predetermined repayment schedules and terms, and failure to meet these obligations may result in penalties or adverse consequences. With Lifestyle Banking, you have more flexibility in repaying policy loans. You can choose to repay the loans according to the terms set by the life insurance company or design your repayment plan.
- Traditional banking involves depositing funds into a bank account, where the bank manages the funds. With Lifestyle Banking, you have control and ownership over the cash value within their whole life insurance policies. You can direct the use of the funds, such as using the cash value as collateral for loans or as an investment vehicle for other opportunities.
#4 Source of Financing
In traditional banking, the source of financing typically involves borrowing money from a financial institution such as a bank or credit union. Individuals can apply for various types of loans, such as personal loans, mortgages, or business loans.
The financial institution’s funds are not based on an insurance policy but rather on criteria like creditworthiness, income, collateral, and the specific terms and conditions set by the lender.
In Lifestyle Banking, the source of financing primarily comes from the cash value of a whole life insurance policy. Policyholders can take loans against the cash value accumulated in their policy.
The cash value serves as collateral for the loan, and the policyholder borrows from the insurance company itself. The cash value within the policy is built over time through premium payments and potential earnings or dividends credited by the insurance company.
#3 Relationship with Financial Institutions
In Lifestyle Banking, individuals establish relationships with insurance companies to purchase a whole life insurance policy. The policyholder and the insurance company form a direct relationship.
The insurance company serves as the custodian of the policy and the source of potential policy loans. The policyholder has control over the cash value within the policy and can access it through policy loans, which are essentially borrowing from the insurance company itself.
The relationship is primarily with the insurance company as the policy provider and source of financing.
On the other hand, in regular banking, individuals establish relationships with traditional financial institutions such as banks or credit unions. These institutions offer various financial products and services, including checking accounts, savings accounts, loans, credit cards, and investment options.
But, this relationship is never direct. There are many third parties involved. On top of that, traditional banking is designed so you and your money work for them instead of them working for you.
#2 Control and Ownership
Lifestyle Banking gives you complete control over your finances and ownership of your lifestyle.
This system is perfect for every ambitious individual and entrepreneur who wants to grab opportunities. But this process is not easy. If you want it to work, you must expand your knowledge.
If you’re dedicated to living the lifestyle you constantly daydream about, Lifestyle Banking can support you.
The biggest revolution Lifestyle Banking brings is the inherent purpose of banking. Lifestyle Banking is designed to help every individual and make them financially stable, independent, and wealthy.
On the other hand, the purpose of traditional banks is only to make more money for themselves while exploiting all the other people. In a system that is designed for their profit and ruled by them—we can’t win.
But, with Lifestyle Banking, you can finally fulfill your full potential.
For all these past years, you didn’t do anything wrong; you just didn’t play by the fair rules. You can win now that you have fair rules and a game that is not framed.
Do you want to win your own lifestyle?