Will I have access to money? What restrictions are there?
Yes. You always have access to your cash value in the form of withdrawals (usually not recommended until retirement time) or policy loans. The process is super simple and you are in control. The policy will be designed in accordance with IRS rules to avoid creating a modified endowment contract (MEC). All other limitations or restrictions will be those set and agreed to between you and the insurance company during the application process and policy issuance.
Do I have to pay back policy loans? What are the repayment terms?
You should ALWAYS pay back policy loans! When you take a policy loan from your plan, you are borrowing from yourself, so if you don’t pay yourself back, you are stealing from yourself. Having said that, you are the banker and are in control of the repayment terms. You can structure your payments in any amount over any period of time you choose. You can skip or suspend payments if you need to or change the amount and term as often as you want.
Why would I want to pay interest to borrow my own money? What if I can a get a bank loan at a lower rate?
It is true there is an interest charge when you borrow from your policy, however, the interest calculation is totally different than how banks and credit card companies calculate interest. As you pay down the policy loan balance, you are paying less and less interest. Over time the overall effective annual interest rate could as little as 2% to 3%, depending upon how the repayment program is set up. It is highly unlikely you will find cheaper financing anywhere! Having said that, if you’re smart, you will actually pay yourself at a much higher rate than the insurance company charges and watch your plan grow exponentially!
In addition one of the most powerful features of Bank On Yourself is that when you borrow money from your policy, your policy continues to grow in the background at the guaranteed rate as if you never borrowed the money! On top of that, the insurance company may pay out an annual dividend that will be based upon the full policy value, again as if you never borrowed from it. With these unique features and a properly structured repayment plan, your policy cash values may actually grow faster when you borrow from it than if you left it alone and didn’t touch it! The real question is, why wouldn’t you use this feature as much as you can?
Can't I do the same thing with a savings account, 401K, or a Universal Life Policy?
Probably not. Now you could save money in any of these vehicles and the use the money for something and then pay yourself back with interest. The problem is that the money actually comes out of your account or plan balance meaning that you will have to give up the interest you would have earned on your money if you hadn’t used it. A Bank On Yourself plan allows your money to be in both places and do both things simultaneously!
With a 401K loan you also have to be concerned about your loan being called due in full if you leave your job or the plan changes. If you are unable to repay it, you will be liable for taxes on the amount you borrowed.
In theory a universal or indexed universal life insurance policy can be used for the Bank On Yourself concept, but upon a closer look we find these universal and index universal life insurance contracts are much less effective than a Whole Life Insurance contract. Compared to a Whole Life Insurance contract, universal and index universal life policies have watered down guarantees, complicated funding and borrowing parameters and an ever increasing cost scenario. We believe in keeping things simple and straightforward and Universal and index universal life insurance policies are anything but…