Have you ever dreamt of financial freedom? Life without strict loan holders hanging over your head? What if we told you it is possible and within your reach? How – you may ask – by introducing you to the concept of Private Family Banking.
Of course – sometimes taking a loan is crucial to fulfilling our dreams. Sadly, insufficient knowledge, poor financial management, or tremendously high interest rates on installments can lead to a never-ending debt cycle. Subsequently, a lot of people find it difficult to accumulate and build wealth in its multi-generational aspect.
Fortunately, the idea known as a family bank gives you your desired freedom. It allows you to be your own banker and ensures steady cash flow, which is non-threatening to liquidity. Not only is it a fantastic financial strategy, but also a guarantee of a better life for future generations.
We will explain thoroughly what Private Family Banking – or PFB for short – is and how to implement this notion into your life. We will cover:
- The concept of infinite banking in reference to Private Family Banking
- What is Private Family Banking?
- What are the advantages of Private Family Banking?
- How to start your own family bank?
- What to avoid in the process of starting your own bank?
Hopefully, this article will help you become more independent in managing personal finance and be the next step to owning your lifestyle.
Before we go into details of PFB, we would like you to become familiar with its origin – the infinite banking concept. Generally, the idea is about strategically using your whole life insurance policy from a mutual insurance company as a personal endless banking system. By way of explanation – it is equal to becoming your own bank!
Infinite banking allows you to imitate how a traditional bank operates and borrows money, but without the need to depend on a third party. You will be both a creditor and a lender.
Instead of borrowing from a bank, you borrow money against yourself, and singlehandedly dictate cash flow while still allowing your whole life insurance policy to earn dividends (money) even though you are using that money elsewhere. In other words, you build wealth while borrowing and repaying the money held in the cash value of your permanent life insurance policy.
One of the most significant advantages of the whole life insurance policy is that you will never have to deal with banking fees or interest rates on loans. As a policyholder, you can borrow money using your own policy’s cash value. Using this borrowing setup, you would never have to borrow money from a bank again and instead would borrow for yourself (your whole life insurance policy) and pay yourself back over time. Thus, being your own bank.
The goal of Infinite banking is to duplicate the process as much as possible to build the value of your own bank. The duplication process happens by lending and repayment of money typically held in the cash value of a permanent life insurance policy.
Infinite banking allows you to better work towards your individual and unique financial goals for yourself and your family and have control over your finances without dealing with banking fees or interest rates on loans.
- Overfunding (with after-tax funds) a high cash value whole life insurance policy from a life insurance company
- Accumulation of Cash Value(tax-free) throughout the years you are a policyholder of your Whole Life insurance policy
- Tax-Free Loans taken out against your whole life insurance policy’s cash value to use for your financial expenses.
By the process of borrowing for yourself, repaying, and so on – simply by being your own bank, you earn the financial freedom and control of your money.
Implementing this banking strategy into your life gives you much better control over your finances and helps you build wealth using the life insurance policy.
We will explain a particular type of the infinite banking concept – Private Family Banking. The general idea is similar to the one mentioned earlier but considered family wealth rather than the individual one. We hope that by the end of this article, you will gain proper knowledge about this type of family banking system and the ability to incorporate it into your life.
Of course, you will not be starting a literal bank. The wording ‘private bank’ refers to the similarity of the methods used by traditional banks and by private family banks.
Unlike profit strategies used by banks, the family banking concept ensures safety from those over-paid fees and loans. It gives you control over your own money and the freedom to manage it however you want to. Therefore it’s impossible to end up in a debt cycle which numerous people fall into because of high interest rates on loans in traditional banks.
The concept of private family banking uses the idea of borrowing the money from your whole life insurance policy and repaying it while still earning dividends. In other words, borrowing money from yourself will not diminish your liquidity. On the contrary, the life insurance company allows you, the policyholder, to borrow the entire cash value of your policy while still increasing the interests and dividends. Why? They base it on the death benefit you have, and in case of not repaying the money, in the end, it will just be deducted from the policy cash value.
Easy loans and protection from debt are not the only advantages of Private Family Banking. It comes with numerous other benefits worth mentioning!
The name ‘Family bank’ hints that it has something to do with our multi-generational wealth-building process. That is correct. As mentioned before, this banking strategy uses the whole life insurance as the capital of our funds. Still, it has its base in the death benefit, which will be inherited by future generations, hence enlarging their wealth. You can also add your family members’ policies into the trust, and by that achieving a much larger financial source for your investments and a faster-growing wealth. But it is not working only as your savings account – it is so much more when it comes to benefits.
Earlier, we mentioned the process of borrowing and repaying your own money without falling into debt. It is possible because the insurance company takes out money from their general fund, leaving your cash value intact. These assets only gain value due to growing interests and dividends. On that account, not only can you borrow money to fulfill your dreams but also, at the same time, build wealth. It is like having a cake and eating that cake too!
Traditional savings accounts work entirely differently. When you borrow the money from the bank, it is deducted from the starting capital. Therefore, less cash value (diminished by the amount of the withdrawn money) can earn interest. More specifically – you lose your compound interest and have to start from the beginning – zero. However, in borrowing from your whole life insurance policy, there is no deduction from the capital. The exact amount of money that has been there before the loan still earns the same interests.
Taking a loan from all those profit-driven companies makes you lose your money even though you made an investment you wanted to. The reason for that is all those high interest rates on loans, fees, etc. But when you bank on yourself, take a loan against your policy – you have to return only the money you borrowed, without extra interest.
If you remember, we said that no money is being deducted from your cash value when taking the loan. So all of the money you will be repaying goes straight to your savings, hence increasing the previously mentioned cash value of your death benefit.
Making more and more investments will drive increasing compound interest, and with every premium payment, it will consecutively grow. The debt will not endanger you because the only person you owe money to is, in fact, you.
When you borrow money from the bank, it is always deducted from your savings account.
You gain interest when you take a loan against yourself because eventually, you are paying yourself off.
Paying the installments punctually is a serious bane for lots of borrowers. A strict plan imposed by the bank is a number one reason for ending up in debt with multiple loans. You borrow money to pay off the first one, then the second, and so on. With the family banking system, you will not have to be afraid of that happening. After all, you are your own bank!
The whole life insurance policy is your key to debt-free and stress-free policy loans with your own repayment plan. You are responsible for arranging the loan repayment plan, and you can adapt it to your requirements and budget without worrying about the money to repay subsequent installments. It is easy like that – you have the financial possibility, you pay off the loan – if not – then it is no issue as well!
In other words – you will not have to risk taking a loan from a sketchy company or use your own saved-up money to pay off the installments. Therefore, securing your and your family’s present life in case of an emergency.
The insurance company will not serve you with a court order for repayment as well. No matter how big the policy loan is, the insurance agents wait for you to pay off, and in case of failure to fulfill the obligation, just deduct the money from your death benefit’s cash value.
As you may already know, inheritance by the next generation’s death benefit is entirely tax-free. Let’s add a tax-free policy loan (as explained earlier, you do not have to pay taxes on interest and dividends) to that tax haven, and we have a never-ending financial capital. But these are not the only benefits of the family banking system.
Policy loans can be used not only to make investments and achieve liquidity but also to fund retirement. Of course, the death benefit, in the end, will be diminished by the amount of the withdrawn money, but you will be receiving a tax-free retirement, and in case of death, the remaining funds will be given as a payout to your family members.
As a result of such enormous tax benefits, Private Family Banking is one of the best ways to build wealth for you and future generations.
Real estate planning, buying stocks, or investing in risky ventures inevitably comes with the possibility of loss. Yes, you can double your assets much faster than with a family banking strategy, but you can lose it all in a blink of an eye. Your wealth depends on the fluctuations in the market, so you can never feel stability when it comes to liquidity.
A whole life insurance policy ensures that you will always gain interest on your death benefit’s cash value, maybe slower than risky investing, but giving you more assurance and stability. And secure savings equal secure life.
Another advantage is protection. Since it is your life insurance, it cannot be used to cover your debts. In the case of bankruptcy or unpaid debt installments, the cash value cannot be used as an attachment up to a statutorily defined dollar amount by any creditor nor bankruptcy trustee. It is justified with bankruptcy and creditor attachment laws, binding in most states.
Sometimes the amount of money exempted from the attachment is the entire cash value of your whole life insurance policy, and hence no money can be deducted from the trust.
Proper knowledge and setup are essential for your family bank to succeed. It may seem that it is too much to consider, analyze and review, but it is crucial to do that so you will not find yourself in a difficult situation.
Private Family Banking is not about finding the whole life insurance policy but choosing the one designed to work with the family banking system.
John Cummuta, in his book ‘The Bankers Secrets’, emphasizes that there are two reasons it is scarce to learn about this type of policy from insurance agents. The first is that most insurance companies simply do not provide their clients with this type of policy. And the second one being the death benefit commission. Numerous agents get their commission from a whole life insurance death benefit provision. Therefore, it is improbable they would suggest a policy structure that decreases their commissions by 50% and even up to 70%.
As a next step towards building wealth, the author poses a few valid questions: ‘Are you contributing to a 401(k) or IRA each month? Do you have an emergency fund in a savings account or CD?. If you answered yes to any of these questions, I’d argue that your Private Family Bank™ can prove a better destination for that money. It can be safer and more productive as premium dollars go into your banking policy than in qualified plans or bank accounts. Suppose your employer gives you an immediate dollar-for-dollar match for your contributions into your 401(k). In that case, you should probably keep funding it to the extent your contributions are matched. Still, anything above that amount could be rerouted into premium dollars for your Private Family Bank.
There is nothing we cannot agree with. Redirecting all of the money into one account will give you more control over your spendings and cash flow than having several funding trusts with just a part of your money in them.
You will get the idea of where your money is going, how you can multiply it with no risk, and build multi-generational wealth. Unlike traditional financial institutions, which are profit-driven, your family bank will be profitable only to you and your family.
But it is not all sunshine and rainbows. There are few risks that you need to look out for.
Usually, policy contracts designed for Private Family Banking have lower starting death benefits but much more predisposition to accumulate wealth. One way to speed up the process is to stack Paid-up additions on top of a whole life insurance policy.
However, you have to be careful with how fast you are maximizing your cash value. Overfunding can only go up to a specific limit, or the IRS starts perceiving the policy not as whole life insurance but rather as something called ‘modified endowment contract’.
Due to the new different nature of the policy, previously mentioned tax benefits are lost.
Private Family Banking enables you and your family members to become financially independent and debt-free. We hope we helped you understand the concept of the family bank and gain a new perspective on how to control your own finances.
You will never have complete control over your funds if you keep on using services provided by banks. Remember – the same way banks benefit from their fees, interest rates on loans – you can too. Bank on yourself! Build wealth by mimicking the banking process of loaning and repaying.
You can learn more about the Infinite Banking concept and how to become your own banker by enrolling in the Wealth Nation membership program. Choose financial freedom and own your own lifestyle!