Bank On Yourself – CBS Response

McFie Insurancedoes not represent Bank On Yourself, but people often associate us indirectly because the concept involves using Cash Value Life Insurance to self-finance purchases.

Here is our response to a recent question regarding the article: Bestselling book’s financial promises don’t add up by Allan Roth on CBS MoneyWatch

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Question: 
I ran across this and it seemed “similar” to what you were talking about.  Could you review this and explain why this doesn’t sound so good? Thanks. 

Response from John McFie: 
As Roth says in this article:

“I spoke with the insurer’s CEO, Jerry Stillwell, twice. While clearly an advocate for whole-life insurance and the financial benefits of borrowing against a policy’s cash value, he told me that “Bottom line, your numbers are right.”

The numbers seem right to me also, but I have 2 problems with this example which lead to a false conclusion:

1. It does not go out far enough – we’re in this GAME for the long run
   • I don’t think this is Roth’s fault, but his agent should have known better than to claim he could “get back every penny” and only show him an example for 2 cars and 12 years.  It’s impossible to recover every penny of cost just financing 2 cars in 12 years with a new policy
   • It takes an average whole life insurance policy 7-15 years for Cash Values to exceed the Total Premium Outlay let alone recover the full cost of a purchase.  This can happen over a period of time, especially if you’re using the money over and over again, but depending on age and other factors sometimes it doesn’t.  That’s why we (McFie Insurance) never claim you can recover every penny you pay for major purchases
2. Roth did not consider the important fact that he can manage to recover a portion of the cost of his cars just not 100% yet
   • If he was paying a bank he would never see any of the money again
   • If he was paying cash he would lose the opportunity for using the money 2x (the growth in the policy while he is using the money to finance a purchase too)
   • Refer to Winning Your Financial GAME Chapter 21 for an accurate full-picture example…also check out the financing example at the end of that chapter.  This is a longer comparison 32-37 years…and even then 100% of the cost is not recovered but the overall cost of financing the cars does go down to only 71 cents per day.

See my Car Financing Video for further details on this example.  After the Car Financing Example this video also has a $ to $ outlay comparison of Conventional Financing vs. Cash vs. Self-Financing with Participating Whole Life Insurance for a business purchase.

I have not read Pamela Yellen’s book personally but she is treading on dangerous ground if she is making the claims Roth says she is.

I fully agree with Roth’s takeaway:

“Whether financial counsel comes packaged in a best-selling book, delivered in TV homilies by some investment guru, or even dispensed in more personal fashion by a trusted advisor, beware of big promises with few specifics. The greatest risk in swallowing the latest financial elixir is wanting to believe that it will work.”

Many agents promote the concept(s) of borrowing from life insurance merely as a marketing/sales tool and use pie in the sky promises to make the sale.  This is too bad…they’re giving a bad name to a very good idea simply because they’re trying to make it better than it is.

Hope this helps.  Let us know if you have further questions and how we can assist you in Winning Your Financial GAME.

Blessings,

by John T. McFie
I am a licensed life insurance agent, and co-host of the Wealth Talks podcast.
At age 14 I started developing spreadsheet models and software systems to help my Dad share financial concepts with clients. 
Skipped college at 17 recognizing the overinflated value and prices of most college degrees and built more financial software instead (see MoneyTools.net). Still a strong advocate of higher education without going to college.  I enjoy making financial strategies clear and working through the numbers to prove results you can count upon.

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