How Policy Loans WorkĪ common misconception with cash flow banking is that the money you borrow from your insurance policy is your own money. Policy loans allow the policyholder to determine the payback schedule of the loan, giving farmers more flexibility than strict bank loan terms where they were at risk of defaulting and losing the family farm.Īs the American demographic shifted from rural farm work to urban businesses, whole life insurance policies transitioned to become tools used by corporations and banks as ways to increase liquidity, avoid paying high interest rates to banks, and generate more cash flow for the company, using policy loans to pay for new buildings and equipment, generate capital, and to take advantage of investment opportunities. Policy loans were also used to pay for farm equipment and help buffer the family through years when the farm failed to yield sufficient crops. In the 1800s, most people weren’t able to pay off their mortgages before they died by using policy loans, they were able to keep up with what they owed and the remainder of the farm mortgage would be taken out of the death benefit of their whole life insurance policy. While homesteaders utilized some bank loans, their mortgages were typically paid for with policy loans from life insurance. In the early days of American settlers when many people relied on farming as a way of life, life insurance played a big role in financing a homestead, livestock, seeds, machinery, etc. Famous businessmen like Walt Disney and Ray Kroc both supplemented their entrepreneurial visions with their whole life policy, and the concept dates back to before the Civil War. The History of Cash Flow BankingĬash flow banking isn’t a new wealth strategy the wealthy have used whole life insurance policies and cash flow banking for centuries. The standard structure for a whole life insurance policy takes many years to grow cash value because your insurance premiums go primarily toward your policy’s death benefit.Ī Wealth Maximization Account prioritizes cash value growth first funding the death benefit is secondary. With a Wealth Maximization Account, your insurance premiums strictly represent how much you would like to cash flow bank with. Not every whole life policy from a mutual insurance company is right for cash flow banking. It’s an asset based off of whole life insurance and is key to cash flow banking. When properly structured for maximum cash growth, we call this type of insurance policy a Wealth Maximization Account.Ī Wealth Maximization Account is like a savings account that provides liquidity, a steady rate of return, security, and tax-benefits. You may have heard cash flow banking referred to as the Infinite Banking Concept, the 770 Account, Private Family Banking, or a Life Insurance Retirement Plan (LIRP). Cash Flow Banking and the Wealth Maximization Account™ With whole life insurance, your family receives a death benefit and you earn money to spend during your lifetime. Regardless of how well your mutual insurance company performs in any given year, you will still receive guaranteed interest and your policy won’t lose value. The mutual insurance companies we work with at Paradigm Life have paid out dividends to policyholders for over 100 years. Whole life policies purchased through a mutual insurance company earn a guaranteed annual interest rate and non-guaranteed dividends. You also earn cash value on your insurance policy, which acts as a high-interest savings account.
With whole life insurance, you pay more upfront but your premium will never go up and you’re insured for your entire lifetime. The truth is, any type of insurance that isn’t properly structured can be expensive and a waste of money. Whole life insurance gets a bad reputation because its premiums are higher than term life insurance.
Another downside to term life insurance is that you miss out on the living benefits of a whole life insurance policy.
Further, renewing a term insurance policy later in life will likely cost you more in monthly premiums because your premium is determined by your age and health. If you don’t pass away during this term, you and your family get nothing in return. When you buy term life insurance, you are only insured for a specified amount of years. Most people want to take care of their family after they die, so they buy term life insurance. Whole life insurance is used because it’s safe and financially strategic. This is most commonly achieved using dividend-paying whole life insurance. It lets you be your own bank and earn interest on yourself. Cash flow banking is a concept that allows you to capture the opportunity cost of your dollars.