The Whole Life Policy Loan

One of our favorite insurance products for wealth management is the whole life policy. These policies get a (sometimes warranted) bad rap, but when used well, they can be powerful wealth builders. We came across an article from Paradigm Life that does a great job explaining how the whole life policy can help you earn interest on yourself.

From the article:

“Perhaps the greatest benefit of a whole life insurance policy is the policy loan feature. As your insurance policy matures, you earn interest and dividends paid into the cash value portion of your policy. Plus, when you have a whole life insurance policy structured for maximum cash value, like one with a Paid-Up Additions rider, your cash value accumulates even faster.”

Every family needs liquidity – sometimes to buy a car, sometimes to pay for an emergency, sometimes just to pay for groceries. The average savings account yields less than nothing (at real rates accounting for inflation), so storing “liquidity” (generally cash) in the bank is ultimately a losing proposition. Reading this short but information-packed piece, you’ll learn another way – we think a better way – to use this kind of policy as an alternative to the traditional savings account. A whole life policy, gives you a vehicle to see a dividend on your capital, often in the 5-6% range, which compounds and grows your wealth. While it’s true that a savings account is FDIC insured, many of the insurance companies that offer whole life have been in existence for well over a century and returned consistently every year. We all have to be the judge of our own risks, but one thing is guaranteed; wealth erodes when real rates are negative.

This “infinite banking” concept is outlined in comprehensive detail by Nelson Nash in Becoming Your Own Banker (which is well worth reading to fully understand this idea), but this piece will get you started. It can be a bit difficult to grasp at first (at least it was for me), but that’s due in part to comprehending how powerful this tool actually is.

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